What changed in this filing

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Item 1. Financial Statements

2025-05-08 compared with 2024-11-14 · 915 added, 959 removed, 301 unchanged (86% of the section changed)

Financial Statements (unaudited)

CONSOLIDATED BALANCE SHEETS

September 30,

Financial Statements

CONDENSED CONSOLIDATED BALANCE

Current assets

Cash and cash equivalents

Investment in Eton Pharmaceuticals

Accounts receivable, net

10 unchanged sentences

Accounts payable and accrued expenses

Contingent consideration payable

Accrued rebates and copay assistance

1 unchanged sentence

Deferred revenue and customer deposits

Current portion of notes payable, net of unamortized debt discount

Current portion of operating lease obligations

1 unchanged sentence

Operating lease obligations, net of current portion

Accrued expenses, net of current portion

Deferred tax liability

Notes payable, net of unamortized debt discounts

Notes payable, net of unamortized debt discount and current portion

TOTAL LIABILITIES

1 unchanged sentence

STOCKHOLDERS’ EQUITY

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 35,611,365 and 35,168,260 shares issued and outstanding at

September 30, 2024 and December 31, 2023, respectively

Common stock, $ 0.001 par value, 50,000,000 shares authorized, 35,654,171 and

35,622,214 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

Additional paid-in capital

9 unchanged sentences

$ 388,971,000

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral

part of these condensed consolidated financial statements

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

For the Three Months Ended

For the Nine Months Ended

September 30,

Product sales, net

$ 132,398,000

Other revenues

3 unchanged sentences

( 10,553,000 )

( 35,110,000 )

( 28,338,000 )

Operating expenses:

2 unchanged sentences

Total operating expenses

Income (loss) from operations

Loss from operations

( 11,232,000 )

( 6,928,000 )

Other (expense) income:

2 unchanged sentences

( 5,415,000 )

( 16,411,000 )

( 16,200,000 )

Investment (loss) gain from Eton Pharmaceuticals

( 3,171,000 )

Loss on extinguishment of debt

Investment loss from Eton Pharmaceuticals

( 1,248,000 )

Other income (expenses), net

Other income, net

Total other expense, net

3 unchanged sentences

( 13,565,000 )

Loss before income taxes

( 4,200,000 )

( 2,852,000 )

( 23,583,000 )

( 14,027,000 )

Provision for income taxes

( 1,539,000 )

( 1,236,000 )

$ ( 4,220,000 )

$ ( 4,391,000 )

$ ( 24,258,000 )

$ ( 15,263,000 )

Basic and diluted net loss per share of common stock

1 unchanged sentence

outstanding, basic and diluted

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

the periods ended September 30, 2024 and 2023

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31,

2025 and 2024

Noncontrolling

1 unchanged sentence

Stockholders’

Balance at December 31, 2022

$ 137,058,000

$ ( 109,493,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Public offering, net of offering costs

Exercise of consultant stock-based options

Exercise of employee stock-based options

Vesting of RSUs and PSUs

Shares withheld related to net share settlement of equity awards

( 12,970,000 )

( 12,971,000 )

Stock-based compensation expense

( 15,263,000 )

Balance at September 30, 2023

$ 200,478,000

$ ( 124,756,000 )

$ ( 355,000 )

Balance at December 31, 2023

Balance at January 1, 2024

$ 204,635,000

12 unchanged sentences

( 13,565,000 )

Balance at September 30, 2024

Balance at March 31, 2024

$ 207,995,000

4 unchanged sentences

Stockholders’

Balance at June 30, 2023

$ 142,742,000

$ ( 120,365,000 )

$ ( 355,000 )

Issuance of common stock in connection with:

Public offering, net of offering costs

Exercise of employee stock-based options

Vesting of PSUs

Shares withheld related to net share settlement of equity awards

( 11,272,000 )

( 11,273,000 )

Stock-based compensation expense

( 4,391,000 )

Balance at September 30, 2023

$ 200,478,000

$ ( 124,756,000 )

$ ( 355,000 )

Balance at June 30, 2024

Balance at January 1, 2025

$ 221,002,000

6 unchanged sentences

Exercise of employee stock-based options

Shares withheld related to net share settlement of equity awards

( 1,205,000 )

Vesting of RSUs

Stock-based compensation expense

2 unchanged sentences

( 17,780,000 )

Balance at September 30, 2024

Balance at March 31, 2025

$ 225,581,000

4 unchanged sentences

$ ( 355,000 )

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30,

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

For the Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

$ ( 13,565,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

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

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

1 unchanged sentence

Amortization of operating lease right-of-use assets

(Recovery of) provision for credit losses

Provision (recovery of) for credit losses

Amortization of debt issuance costs and debt discount

Investment loss (gain) from investment in Eton

( 2,676,000 )

Loss on extinguishment of debt

Loss on disposal of intangible assets

Investment loss from investment in Eton

Stock-based compensation

Deferred income tax

Changes in assets and liabilities:

Accounts receivable

( 17,453,000 )

( 12,287,000 )

( 2,383,000 )

Prepaid expenses and other current assets

( 4,079,000 )

Accounts payable, accrued expenses, accrued rebates and copay assistance

( 11,096,000 )

( 8,939,000 )

Accrued payroll and related liabilities

Deferred revenue and customer deposits

NET CASH USED IN OPERATING ACTIVITIES

( 1,891,000 )

Deferred revenue and customer deposits

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

( 4,628,000 )

CASH FLOWS FROM INVESTING ACTIVITIES

Net proceeds from sale of investment in Eton Pharmaceuticals

Investment in patent and trademark assets

Purchase of product NDAs and related patents

( 151,084,000 )

Purchases of property, plant and equipment

( 1,040,000 )

( 1,266,000 )

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

( 152,350,000 )

NET CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from 11.875 % notes payable, net of costs

Proceeds from Oaktree Loan, net of costs

Payment of debt issuance costs

Payment of payroll taxes upon vesting of PSUs, RSUs and exercise of stock options

( 1,157,000 )

( 12,971,000 )

Proceeds from exercise of stock options

Proceeds from B.

Riley senior secured note, net of costs

Repayment of B.

Riley senior secured note

( 59,750,000 )

Proceeds from public offering of common stock, net of costs

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

( 1,457,000 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

( 5,547,000 )

( 30,660,000 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AT END OF PERIOD

CASH AND CASH EQUIVALENTS, beginning of period

CASH, CASH EQUIVALENTS, end of period

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

2 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Reclassification of deferred financing costs

Accrual of exit fee related to Oaktree Loan

Purchase of property, plant and

equipment included in accounts payable and accrued expenses

Change in right-of-use assets for operating lease obligations assumptions

Insurance premium financed

Purchase of product NDAs associated with contingent consideration payable

Purchase of property, plant and equipment included in

accounts payable and accrued expenses

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

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

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the Three and Nine Months Ended September 30, 2024 and 2023

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

and Background

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2025 and

DESCRIPTION OF BUSINESS AND BASIS OF

Company and Background

(together with its consolidated subsidiaries, unless the context indicates or otherwise requires, the “Company”

or “Harrow”) is a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of

innovative ophthalmic pharmaceutical products for the U.S.

or “Harrow”) is a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative

ophthalmic pharmaceutical products for the U.S.

Harrow helps U.S.

eyecare professionals preserve the gift of sight

by making its comprehensive portfolio of prescription and non-prescription pharmaceutical products accessible and affordable to millions

of Americans each year.

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

in the U.S, all of which are marketed under its Harrow name.

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

leading ophthalmology-focused pharmaceutical-compounding businesses.

of Presentation

Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles

generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the

rules and regulations of the U.S.

Securities and Exchange Commission.

Accordingly, they do not include all of the information and footnotes

required by GAAP for audited financial statements.

In the opinion of management, all adjustments (consisting of only normal recurring

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

Operating results for the three and nine months ended September

30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.

For further information, refer to the Company’s audited consolidated financial statements and notes thereto included in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2023.

accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority

owned subsidiaries.

consolidates entities in which it has a controlling financial interest.

The Company assesses control under the variable interest entity

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

The Company consolidates (i) entities

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

deemed to be the primary beneficiary.

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

The Company owns commercial rights to one of the largest portfolios of branded ophthalmic pharmaceutical products in the U.S.,

all of which are marketed under its Harrow name.

The Company also owns and operates ImprimisRx, one of the nation’s leading ophthalmology-focused

pharmaceutical-compounding businesses.

Basis of Presentation

The Company has prepared the accompanying unaudited

condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America

(“GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S.

Securities and Exchange

Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements.

the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation

have been included.

Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may

be expected for the year ending December 31, 2025 or for any other period.

For further information, refer to the Company’s audited

consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December

The accompanying unaudited condensed consolidated

financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries.

Harrow consolidates entities in which it has a

controlling financial interest.

The Company assesses control under the variable interest entity (“VIE”) model to determine

whether the Company is the primary beneficiary of that entity.

The Company consolidates (i) entities in which it holds and/or controls,

directly or indirectly, more than 50% of the voting rights, and (ii) VIEs for which the Company is deemed to be the primary beneficiary.

All intercompany accounts and transactions have been eliminated in consolidation .

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

following represents an update for the three and nine months ended September 30, 2024 to the significant accounting policies described

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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

based on financial information presented as operating segments.

During the period ended September 30, 2024, the Company identified two

operating segments as reportable segments.

See Note 15 for more information regarding the Company’s reportable segments.

Uncertainties and Liquidity

Company is subject to certain regulatory standards, approvals, guidelines and inspections which could impact the Company’s ability

to make, dispense, and sell certain products.

If the Company was required to cease compounding and selling certain products as a result

of regulatory guidelines or inspections, this may have a material impact on the Company’s financial condition, liquidity and results

of operations.

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

Management considers historical collection rates, the current financial status of the Company’s customers, macroeconomic factors,

and other industry-specific factors when evaluating for current expected credit losses.

Forward-looking information is also considered

in the evaluation of current expected credit losses.

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

management believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical

and current analysis of such financial instruments, including its trade receivables.

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

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

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

Each business component is analyzed for estimated

credit losses individually.

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

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

Further, the Company considers macroeconomic factors and the status of the pharmaceuticals industry to estimate if there are current

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

economic and industry-specific factors.

Also, specific allowance amounts are established based on review of outstanding invoices to record

the appropriate provision for customers that have a higher probability of default.

accounts receivable balance on the Company’s condensed consolidated balance sheet as of September 30, 2024 was $ 53,734,000 , net

of $ 281,000 of allowances.

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

cost basis of accounts receivable to present the net amount expected to be collected at September 30, 2024:

The following represents an update for the three

months ended March 31, 2025 to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the

year ended December 31, 2024.

Risks, Uncertainties and Liquidity

The Company is subject to certain regulatory standards,

approvals, guidelines and inspections which could impact the Company’s ability to make, dispense, and sell certain products.

the Company was required to cease compounding and selling certain products as a result of regulatory guidelines or inspections, this may

have a material impact on the Company’s financial condition, liquidity and results of operations.

The Oatree Loan (as defined in Note 11) totaling

$ 107,500,000 principal at March 31, 2025 and the 2026 Notes (as defined in Note 11) totaling $ 75,000,000 in principal amount outstanding

at March 31, 2025 become due in January 2026 and April 2026, respectively.

The maturity of these debt obligations prior to their maturities

without a refinancing event could raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is currently in discussions with its

current senior lender, Oaktree Fund Administration, LLC, as administrative agent for the lenders (together, “Oaktree”), and

other potential lenders about refinancing the Oaktree Loan and the 2026 Notes.

Management expects to engage in more definitive discussions

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

Management believes it is probable that the

Company will be able to refinance the Oaktree Loan and the 2026 Notes based on the Company’s collateral strength and expected cash

flows from operations;

however, there can be no assurance that the Company will be able to refinance the indebtedness on terms acceptable

to it, or at all.

Management believes that one of the other alternatives

available to it in lieu of refinancing the Oaktree Loan and the 2026 Notes is the sale of one or more of the Company’s assets.

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

If the Company is unable

to successfully refinance the Oaktree Loan and the 2026 Notes, or sell certain assets, the Company does not expect to have the ability

to repay the Oaktree Loan and the 2026 Notes in full.

The accompanying consolidated financial statements

are prepared on a going concern basis and do not include any adjustments that might result from the Company’s inability to refinance

the Oaktree Loan and the 2026 Notes or sell some of its assets to meet its obligations.

Credit Losses

The Company estimates and records a provision

for its expected credit losses related to its financial instruments, including its trade receivables.

Management considers historical

collection rates, the current financial status of the Company’s customers, macroeconomic factors, and other industry-specific factors

when evaluating for current expected credit losses.

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

credit losses.

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

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

instruments, including its trade receivables.

To determine the provision for credit losses for

accounts receivable, the Company has disaggregated its accounts receivable by class of customer at the business component level, as management

determined that the risk profile of the Company’s customers is consistent based on the type and industry in which they operate,

mainly in the pharmaceuticals industry.

Each business component is analyzed for estimated credit losses individually.

In doing so, the

Company establishes a historical loss matrix, based on the previous collections of accounts receivable by the age of such receivables,

and evaluates the current and forecasted financial position of its customers, as available.

Further, the Company considers macroeconomic

factors and the status of the pharmaceuticals industry to estimate if there are current expected credit losses within its trade receivables

based on the trends of the Company’s expectation of the future status of such economic and industry-specific factors.

Also, specific

allowance amounts are established based on review of outstanding invoices to record the appropriate provision for customers that have

a higher probability of default.

The following table provides a roll-forward of

the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected

to be collected at March 31, 2025:

OF ACCOUNTS RECEIVABLE ALLOWANCE OF CREDIT LOSS

2 unchanged sentences

Write-offs, net of recoveries

Balance at September 30, 2024

Value Measurements

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

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

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

The established fair value hierarchy prioritizes

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

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

A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value

whenever available.

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

prices for similar assets or liabilities;

Balance at March 31, 2025

Fair Value Measurements

Fair value measurements are determined based on

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

GAAP establishes a hierarchy for inputs used in measuring

fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable

inputs be used when available.

The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into

the following three levels:

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

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

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

quoted prices in markets that are not active;

or other inputs that are observable or can

be corroborated by observable market data for substantially the full term of the assets or liabilities.

Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own

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

For example, Level 3 inputs

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

December 31, 2023, the Company measured its investment in Eton Pharmaceuticals, Inc.

(“Eton”) on a recurring basis.

The Company’s

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

same securities.

As of December 31, 2023, the fair market value of the Company’s investment in Eton was $ 8,681,000 .

In April 2024,

the Company sold all of its shares of common stock it held of Eton in a block trade at a gross price of $ 3.00 per share.

After deducting

trading expenses and commissions of approximately $ 436,000 , the Company received net proceeds of $ 5,510,000 and recorded a loss of $ 3,171,000

related to the sale of its investment in Eton.

Company’s 2026 Notes (as defined in Note 11) are carried at face value, including the unamortized premium, less unamortized debt

issuance costs, the 2027 Notes (as described in Note 11) are carried at face value less unamortized debt issuance costs, and the Oaktree

Loan (as defined in Note 11) is carried at face value less the original issue discount and unamortized debt issuance costs on the condensed

consolidated balance sheets and the Company presents fair value for disclosure purposes only.

The 2026 Notes and 2027 Notes are classified

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

Loan is classified as a Level 2 instrument and its fair value is determined through an income approach that considers collateral coverage,

yield calibration, yield analysis and any adjustments to implied yield associated with the Company’s fundamental measures.

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

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

For example, Level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

The Company’s 2026 Notes (as defined in

Note 10) are carried at face value, including the unamortized premium, less unamortized debt issuance costs, the 2027 Notes (as described

in Note 10) are carried at face value less unamortized debt issuance costs, and the Oaktree Loan (as defined in Note 10) is carried at

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

presents fair value for disclosure purposes only.

The 2026 Notes and the 2027 Notes are classified as Level 1 instruments as the fair

value is determined using quoted market prices in active markets for the same securities.

The Oaktree Loan is classified as a Level 2

instrument and its fair value is determined through an income approach that considers collateral coverage, yield calibration, yield analysis

and any adjustments to implied yield associated with the Company’s fundamental measures.

The following table presents the estimated fair

values and the carrying values:

OF ESTIMATED FAIR VALUE

September 30, 2024

March 31, 2025

December 31, 2024

1 unchanged sentence

Carrying Value

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

accrued payroll and related liabilities, contingent consideration payable, deferred revenue and customer deposits and operating lease

The carrying amount of these financial instruments, except for operating lease liabilities, approximates fair value due

to the short-term maturities of these instruments.

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

the operating lease liabilities approximate their respective fair values.

and Diluted Net Loss per Common Share

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

number of common shares outstanding during the period.

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

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

stock units (“RSUs”), and market-based vesting performance stock units (“PSUs”), outstanding during the period.

Common equivalent shares (using the treasury stock method) from stock options, unvested RSUs, and unvested PSUs were 4,411,488 and 4,588,982

at September 30, 2024 and 2023, respectively, and are excluded in the calculation of diluted net loss per common share for the periods

presented because the effect is anti-dilutive.

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

directors that had vested, but the issuance and delivery of the shares are deferred until the director ceases providing services.

number of shares underlying vested RSUs at September 30, 2024 and 2023 was 195,696 and 244,352 , respectively.

following table shows the computation of basic and diluted net loss per share of common stock:

OF BASIC NET LOSS PER SHARE OF COMMON STOCK

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

The Company’s other financial instruments

include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities,

deferred revenue and customer deposits and operating lease liabilities.

The carrying amount of these financial instruments, except for

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

Based on borrowing rates currently

available to the Company, the carrying value of the operating lease liabilities approximate their respective fair values.

Basic and Diluted Net Loss per Common Share

Basic net loss per common share is computed by

dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during

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

weighted average number of common and common equivalent shares, such as stock options, restricted stock units (“RSUs”), performance

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

Common equivalent shares (using the treasury stock method)

from stock options, unvested RSUs, unvested PSUs and warrants were 4,367,766 and 4,318,057 at March 31, 2025 and 2024, respectively, and

are excluded in the calculation of diluted net loss per common share for the periods presented, because the effect is anti-dilutive.

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

of the shares are deferred until the director resigns.

The number of shares underlying vested RSUs at March 31, 2025 and 2024 was 199,216

and 223,928 , respectively.

The following table shows the computation of basic

net loss per share of common stock for the three months ended March 31, 2025 and 2024:

OF BASIC AND DILUTED EARNINGS PER COMMON SHARE

For the Three Months Ended March 31,

Numerator – net loss

1 unchanged sentence

$ ( 13,565,000 )

$ ( 24,258,000 )

$ ( 15,263,000 )

Denominator – weighted average number of shares outstanding, basic and diluted

Net loss per share, basic and diluted

Company’s effective tax rate was ( 2.95 ) % and ( 8.81 ) % for the nine months ended September 30, 2024 and 2023, respectively.

The Company’s

effective tax rate for the nine months ended September 30, 2024 and 2023 differs from the U.S.

federal statutory tax rate of 21 % due

to state taxes, permanent book-tax differences related to Internal Revenue Code of 1986, as amended, Section 162(m) excess officer compensation

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

In the current period ended September 30, 2024, the Company met the exception to using the estimated annual effective

The current period income tax expense reflects year-to-date income tax expense.

The prior year third quarter income tax expense

was recorded using the estimated annual effective tax rate.

of September 30, 2024 and December 31, 2023, there were no unrecognized tax benefits included in the condensed consolidated balance sheets

that would, if recognized, affect the effective tax rate.

in Melt Pharmaceuticals, Inc.

– Related Party

Company owns 3,500,000 shares of common stock and 2,334,256 shares of preferred stock of Melt (representing in aggregate approximately

46 % of Melt’s equity interests as of September 30, 2024).

The Company analyzes its investment in Melt and related agreements on

a regular basis to evaluate its position of variable interests in Melt.

The Company has determined that it does not have the ability

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

the Company uses the equity method of accounting for the Melt investment.

Under this method, the Company recognizes earnings and losses

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

Any intra-entity

profits and losses are eliminated.

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

investments may be other than temporarily impaired.

Indicators include financial condition, operating performance, and near-term prospects

of the investee.

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

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

If a potential loss in value is determined to be other

than temporary, the Company will recognize an impairment loss based on the estimated fair value of the equity method investments.

Company has no investments other than its common stock and preferred stock positions in Melt and no other requirements to advance funds

following table summarizes the Company’s investments in Melt as of September 30, 2024:

SCHEDULE OF INVESTMENT

Share of Equity Method

$ ( 5,810,000 )

Preferred stock

( 18,397,000 )

$ ( 24,207,000 )

Note 4 for more information and related party disclosure regarding Melt.

Guidance Issued but Not Adopted at September 30, 2024

October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements—Codification Amendments

in Response to the SEC’s Disclosure Update and Simplification Initiative .

This ASU modifies the disclosure or presentation

requirements of a variety of topics in the codification by aligning them with the SEC’s regulations.

The amendments to the various

topics should be applied prospectively, and the effective date for the Company for each amendment will be determined based on the effective

date of the SEC’s removal of the related disclosure from Regulation S-X or Regulation S-K.

If the SEC has not removed the applicable

requirement by June 30, 2027, then the related amendment in ASU 2023-06 will be removed from the codification and will not become effective.

The Company’s effective tax rate was ( 0 ) %

and ( 0.11 ) % for the three months ended March 31, 2025 and 2024, respectively.

The Company’s effective tax rate for the three months

ended March 31, 2025 and 2024 differs from the U.S.

federal statutory tax rate of 21 % due to state taxes, permanent book-tax differences

related to Internal Revenue Code of 1986, as amended (“IRC”), Section 162(m) excess officer compensation limitation and share-based

compensation and the change in valuation allowance.

As of March 31, 2025 and December 31, 2024, there

were $ 2,860,000 and $ 2,858,000 ,

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

effective tax rate.

Accounting Guidance Issued but Not Adopted at March 31, 2025

In October 2023, FASB

issued ASU 2023-06, Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and

Simplification Initiative .

This ASU modifies the disclosure or presentation requirements of a variety of topics in the codification

by aligning them with the SEC’s regulations.

The amendments to the various topics should be applied prospectively, and the effective

date for the Company for each amendment will be determined based on the effective date of the SEC’s removal of the related disclosure

from Regulation S-X or Regulation S-K.

If the SEC has not removed the applicable requirement by June 30, 2027, then the related amendment

in ASU 2023-06 will be removed from the codification and will not become effective.

Early adoption of this ASU is prohibited.

The Company does not expect the amendments in this ASU to have a material impact on the disclosures

or presentation on its consolidated financial statements.

November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures , which

enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements.

ASU 2023-07 is effective for the Company in our annual reporting for fiscal 2024 and for interim period reporting beginning in fiscal

2025 on a retrospective basis, with all required disclosures to be made for all prior periods presented in the consolidated financial

Early adoption is permitted.

The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial

December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures , which enhances

the disclosures required for income taxes in the Company’s annual consolidated financial statements.

Notably, this ASU requires

entities to disclose specific categories in the effective tax rate reconciliation and provide additional information for reconciling

items that meet a quantitative threshold.

ASU 2023-09 is effective for the Company in its annual reporting for fiscal year 2025 on a

prospective basis.

does not expect the amendments in this ASU to have a material impact on the disclosures or presentation in its consolidated financial

In December 2023, FASB issued ASU 2023-09, Income

Taxes (Topic 740) - Improvements to Income Tax Disclosures , which enhances the disclosures required for income taxes in the Company’s

annual consolidated financial statements.

Notably, this ASU requires entities to disclose specific categories in the effective tax rate

reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

ASU 2023-09 is effective for

the Company in its annual reporting for fiscal year 2025 on a prospective basis.

Early adoption and retrospective reporting are permitted.

The Company is currently evaluating the impact of ASU 2023-09

on its consolidated financial statements.

November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation

Disclosures, to improve the disclosures by a public business entity about the types of expenses in commonly presented expense captions.

This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December

15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial

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

The Company has

three primary streams of revenue:

(1) 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 and related

arrangements.

Company sells prescription medications directly through its pharmacy, outsourcing facility and 3PL partner.

Revenue from the Company’s

pharmacy services include:

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

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

Sales taxes are not included in revenue.

The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03,

Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures , to improve the disclosures

by a public business entity about the types of expenses in commonly presented expense captions.

This ASU is effective for annual reporting

periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements.

The Company accounts

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

The Company has two primary

streams of revenue:

(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, and (2) revenue recognized from

intellectual property licenses and related arrangements.

Product Revenues

The Company sells prescription

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

Revenue from the Company’s pharmacy services includes:

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

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

Sales taxes are

not included in revenue.

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

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 the Company’s contracts consist of delivering

the product to customers at their specified destination.

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

control of the goods after shipment, shipping and handling activities would always be considered a fulfillment activity and not treated

as a separate performance obligation.

If the customer takes control of the goods before shipment, entities must make an accounting

policy election to treat shipping and handling activities as either a fulfillment cost or as a separate performance obligation.

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

the transaction price:

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

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

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

The Company utilizes the services

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

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

There is no non-cash

consideration related to product sales.

the transaction price to the performance obligations in the contract:

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.

From Transfer of Acquired Product Sales and Profits

Company has entered into agreements whereby it purchased the exclusive commercial rights to assets associated with certain ophthalmic

products from other pharmaceutical companies (the “Sellers”).

During a temporary, transition period, the Sellers continue

to manufacture and market these products and transfer the net profit from the sale of the products to the Company.

The revenue recognized

by the Company from the transfer of net profit was recognized at the time profit from the product sales were calculated by the Sellers

and confirmed by the Company, typically on a monthly basis, at which point there is no future performance obligation required by the

Company and no consequential continuing involvement on the Company’s part to recognize the associated revenue.

On a quarterly basis,

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

The Company uses historical actual experience to estimate Chargebacks associated with the net sales and profit transferred.

The estimated

Chargebacks are recorded as a reduction in revenues from transfer of acquired product sales and profits in the Company’s consolidated

statements of operations, and recorded as a reduction to accounts receivable in the consolidated balance sheets, at the time the revenue

is recognized.

Property License and Related Arrangements Revenues

of September 30, 2024, the Company held five intellectual property licenses and related arrangements pursuant to which the Company has

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

License arrangements may consist

of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive license rights to patented or

patent pending compounds, technology access fees, and various performance or sales milestones.

These arrangements can be multiple-element

arrangements, the revenue of which is recognized at the point in time that the performance obligation is met.

Non-refundable

fees that are not contingent on any future performance by the Company and require no consequential continuing involvement on the part

of the Company are recognized as revenue when the license term commences and the licensed data, technology, compounded drug preparation

and/or other deliverables are delivered.

Such deliverables may include physical quantities of compounded drug preparations, design of

the compounded drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to

the patents or patent applications for such compounded drug preparations.

The Company defers recognition of non-refundable fees if it

has continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable

fee has no utility to the licensee and that are separate and independent of the Company’s performance under the other elements

of the arrangement.

In addition, if the Company’s continued involvement is required, through research and development services

that are related to its proprietary know-how and expertise of the delivered technology or can only be performed by the Company, then

such non-refundable fees are deferred and recognized over the period of continuing involvement.

Guaranteed minimum annual royalties are

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

disaggregated by revenue source consisted of the following:

SCHEDULE OF DISAGGREGATED REVENUE

For the Three Months Ended

For the Nine Months Ended

September 30,

Product sales, net

Identify the contract(s) with a customer:

A contract is deemed to exist when the customer places an order through receipt of a prescription, via an online order or via receipt of a purchase order from a customer.

For branded products, orders are received through the Company’s 3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled.

Identify the performance obligations in the contract:

Obligations for fulfillment of the Company’s contracts consist of delivering the product to customers at their specified destination.

For shipping and handling activities under ASC 606, if the customer takes control of the goods after shipment, shipping and handling activities would always be considered a fulfillment activity and not treated as a separate performance obligation.

If the customer takes control of the goods before shipment, entities must make an accounting policy election to treat shipping and handling activities as either a fulfillment cost or as a separate performance obligation.

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

Determine the transaction price:

The transaction price is based on an amount that reflects the consideration to which the Company expects to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts, copay assistance and other deductions (collectively, sales deductions) and an estimate for returns and replacements established at the time of sale.

The Company utilizes the services of a third-party professional services firm to estimate rebates and chargebacks associated with sales of its branded products.

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

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

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 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.

Variable Consideration

Sales of branded pharmaceutical products are subject

to variable consideration due to chargebacks, government rebates, returns, administrative fees, co-pay assistance and other rebates, and

prompt pay 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, the Company may pre-authorize wholesalers to offer specified contract pricing to other indirect customers.

arrangement, the Company provides 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:

Changes in customer mix

Changes in negotiated terms with customers

Changes in the volume of off-contract purchases

Changes in WAC

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.

The Company continually monitors chargeback activity and adjusts NPPs

when the Company believes 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 the Company’s products by beneficiaries under such governmental programs.

The two largest government programs are Medicaid and Medicare.

The Company participates in the Medicaid Drug

Rebate Program and pays rebates to the states related to Medicaid beneficiary utilization of the Company’s 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.

The Company participates 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.

continually monitors the government rebate reserve and adjusts 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 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 subsequent to 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.

Product 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.

The Company continually monitors estimates for returns and adjusts 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 accrued expenses 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 NPP.

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

from the wholesalers.

The Company continually monitors administrative fee activity and adjusts 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 sheets.

Co-payment Assistance

Patients who meet certain eligibility requirements

may receive co-payment assistance funded by the Company.

The Company records contra-revenue for co-payment assistance based on actual

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

An accrued liability is recorded

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

Prompt Payment Discounts

Sales 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 sheets.

The following table summarizes activity and ending

balances of the Company’s variable consideration provisions in the consolidated financial statements for the three months ended

March 31, 2025, and 2024:

OF ACCRUALS AND ALLOWANCES

Accruals for Chargebacks, Returns, and Other Allowances

Government Rebates

Administrative Fees and Other Rebates

Co-Pay Assistance

Prompt Pay Discounts

Balance at December 31, 2023

Accruals/Adjustments

Credits Taken Against Reserve

( 2,801,000 )

Other revenues

Total revenues

( 15,703,000 )

revenue and customer deposits at September 30, 2024 and December 31, 2023 were $ 137,000 and $ 75,000 , respectively.

All deferred revenue

and customer deposit amounts at December 31, 2023 were recognized as revenue during the nine months ended September 30, 2024.

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

- RELATED PARTY TRANSACTIONS

December 2018, the Company entered into an Asset Purchase Agreement with Melt (the “Melt APA”).

Pursuant to the terms of

the Melt APA, Melt was assigned certain intellectual property and related rights from the Company to develop, formulate, make, sell,

and sub-license certain Company conscious sedation and analgesia related formulations (collectively, the “Melt Products”).

Under the terms of the Melt APA, Melt is required to make mid-single digit royalty payments to the Company on net sales of the Melt Products

while any patent rights remain outstanding, as well as other conditions.

February 2019, the Company entered into a Management Services Agreement (the “Melt MSA”), whereby the Company provided

to Melt certain administrative services and support, including bookkeeping, web services and human resources related activities, and

Melt was required to pay the Company a monthly amount of $ 10,000 .

The Melt MSA was terminated effective July 1, 2023.

During the three and nine months ended September 30, 2024, the Company did not

record any reimbursable expenses and amounts payable by Melt pursuant to the Melt MSA.

During the three and nine months ended

September 30, 2023, the Company recorded $ 0

due from Melt for reimbursable expenses and amounts payable by Melt pursuant to the Melt MSA, which amounts are included in prepaid

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

of both September 30, 2024 and December 31, 2023, the Company was due $ 228,000

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

March 2024, Melt completed its Series B Preferred Stock financing which raised gross proceeds of approximately $ 23,900,000 .

Company’s Chief Executive Officer, Mark L.

Baum, is a member of the Melt board of directors.

The Melt board of directors consists

of five members, including Mr.

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

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

OF CONDENSED INCOME STATEMENT

For the Nine Months Ended

September 30,

Revenues, net

Loss from operations

( 1,574,000 )

( 20,564,000 )

Balance at March 31, 2024

Balance at December 31, 2024

Beginning, balance

Accruals/Adjustments

Credits Taken Against Reserve

( 3,687,000 )

( 3,136,000 )

unaudited condensed balance sheet information of Melt is summarized below:

OF CONDENSED BALANCE SHEET

At September 30,

At December 31,

Current assets

Total liabilities

Total stockholders’ equity

Total liabilities and stockholders’ equity

( 2,590,000 )

( 28,698,000 )

( 27,109,000 )

( 1,943,000 )

( 67,164,000 )

Balance at March 31, 2025

Ending, balance

Intellectual Property License and Related Arrangements Revenues

The Company holds multiple intellectual property

licenses and related arrangements pursuant to which the Company has agreed to license or sell to a customer the right to access the Company’s

intellectual property.

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

payments, exclusive license rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones.

These arrangements can be multiple-element arrangements, the revenue of which is recognized at the point in time that the performance

obligation is met.

Non-refundable fees that are not contingent on

any future performance by the Company and require no consequential continuing involvement on the part of the Company are recognized as

revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverables are delivered.

Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity

relationships, the conceptual framework and mechanism of action, and rights to the patents or patent applications for such compounded

drug preparations.

The Company defers recognition of non-refundable fees if it has continuing performance obligations without which the

technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee and that are

separate and independent of the Company’s performance under the other elements of the arrangement.

In addition, if the Company’s

continued involvement is required, through research and development services that are related to its proprietary know-how and expertise

of the delivered technology or can only be performed by the Company, then such non-refundable fees are deferred and recognized over the

period of continuing involvement.

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

Revenue disaggregated by revenue source for the

three months ended March 31, 2025 and 2024 consisted of the following:

SCHEDULE OF DISAGGREGATED REVENUE

For the Three Months Ended

Product sales, net

Other revenues

Total revenues

Deferred revenue and customer deposits at March

31, 2025 and December 31, 2024 were $ 145,000 and $ 44,000 , respectively.

All deferred revenue and customer deposit amounts at December

31, 2024 were recognized as revenue during the three months ended March 31, 2025.

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

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

The composition of inventories was as follows:

The composition of inventories as of March 31, 2025 and December 31, 2024 was as follows:

OF INVENTORIES

At December 31,

March 31, 2025

December 31, 2024

Raw materials

3 unchanged sentences

PREPAID EXPENSES AND OTHER CURRENT ASSETS

expenses and other current assets consisted of the following:

Prepaid expenses and other current assets at March

31, 2025 and December 31, 2024 consisted of the following:

OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

At September 30, 2024

At December 31, 2023

March 31, 2025

December 31, 2024

Prepaid insurance

3 unchanged sentences

Receivable due from Melt

Prepaid FY 2024 Prescription Drug User (“PDUFA”) fees

Deferred Oaktree Loan commitment fee

Annual Prepaid Prescription Drug User (“PDUFA”) fees

Deposits and other current assets

1 unchanged sentence

PROPERTY, PLANT AND EQUIPMENT

plant and equipment consisted of the following:

Property, plant and equipment at March 31, 2025

and December 31, 2024 consisted of the following:

OF PROPERTY, PLANT AND EQUIPMENT

At September 30, 2024

At December 31, 2023

Property, plant and equipment:

March 31, 2025

December 31, 2024

Property, plant and equipment, net:

Computer hardware

7 unchanged sentences

Property, plant and equipment,

the three and nine months ended September 30, 2024, depreciation related to property, plant and equipment was $ 351,000 and $ 948,000 ,

respectively, compared to $ 290,000 and $ 743,000 during the same periods in 2023, respectively.

For the three months ended March 31, 2025 and

2024, depreciation related to the property, plant and equipment was $ 312,000 and $ 296,000 , respectively.

CAPITALIZED SOFTWARE COSTS

software costs consisted of the following:

Capitalized software costs at March 31, 2025 and

December 31, 2024 consisted of the following:

SCHEDULE OF CAPITALIZED SOFTWARE COSTS

At September 30, 2024

At December 31, 2023

March 31, 2025

December 31, 2024

Capitalized software costs

5 unchanged sentences

( 1,849,000 )

Capitalized internal-use software in process

Total capitalized software

Company recorded amortization expense of $ 146,000 and $ 434,000 related to capitalized software costs during the three and nine months

ended September 30, 2024, respectively, and $ 115,000 and $ 352,000 during the same periods in 2023, respectively.

For the three months ended March 31, 2025 and

2024, the Company recorded amortization expense related to capitalized software costs of $ 153,000 and $ 136,000 , respectively.

INTANGIBLE ASSETS AND GOODWILL

Company’s intangible assets at September 30, 2024 consisted of the following:

The Company’s intangible assets at March 31, 2025 consisted of

the following:

SCHEDULE OF INTANGIBLE ASSETS

Weighted-average useful life

Carrying Value

$ ( 207,000 )

Acquired NDAs

1 unchanged sentence

Customer relationships

Non-competition clause

State pharmacy licenses

2 unchanged sentences

$ 180,765,000

expense for intangible assets was as follows:

Amortization expense for intangible assets for

the three months ended March 31, 2025 and 2024 was as follows:

SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS

For the Three Months Ended

For the Nine Months Ended

September 30,

Acquired NDAs

Customer relationships

State pharmacy licenses

expense of intangible assets

future amortization expenses for the Company’s intangible assets at September 30, 2024 was as follows:

Estimated future amortization expense for the Company’s intangible

assets at March 31, 2025 was as follows:

OF ESTIMATED FUTURE AMORTIZATION EXPENSE

1 unchanged sentence

$ 180,509,000

connection with an asset purchase agreement between Novartis and the Company, the Company is required to make a milestone payment

following the release of the first commercially available batch of TRIESENCE .

During the three months ended September 30, 2024, the

Company determined that it was probable the first commercial batch would be released and, as such, recognized the $ 37,000,000

milestone payment as an increase in the amount of intangible assets for Acquired NDAs.

were no changes to the carrying value of the Company’s goodwill during the three and nine months ended September 30, 2024 and 2023.

There were no changes to the carrying value of the Company’s

goodwill during the three months ended March 31, 2025 and 2024.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

payable and accrued expenses consisted of the following:

Accounts payable and accrued expenses at March

31, 2025 and December 31, 2024 consisted of the following:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

September 30,

Accounts payable

Accrued insurance premium

Other accrued payments

Accrued interest (see Note 10)

Accrued exit fee for Oaktree Loan (see Note 11)

Other accrued expenses

Total accounts payable and accrued expenses

current portion

( 25,277,000 )

( 24,581,000 )

Non-current total accrued expenses

Loan Due 2026

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

LLC, as administrative agent for the lenders (“Oaktree”), providing for a senior secured term loan facility to

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

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

$ 65,000,000 .

In July 2023, the Company drew an additional principal amount of $ 12,500,000 and entered into the First Amendment to the

Oaktree Loan (the “First Amendment”).

Under the First Amendment, the overall credit facility size was increased from

$ 100,000,000 to $ 112,500,000 .

The additional principal loan amount of up to $ 35,000,000 available under the Oaktree Loan (“Tranche

B”) was to be made available to the Company upon the commercialization of TRIESENCE.

Since Tranche B was not drawn by the Company on or

before March 27, 2024, the amount available under Tranche B decreased to $ 30,000,000 .

While undrawn, the Company is required to pay a

commitment fee related to the Tranche B amount equal to 2 % per annum, payable quarterly.

This fee is recorded within prepaid expenses

and other current assets and is being amortized on a straight-line basis over the access period.

expense related to the Oaktree Loan totaled $ 3,026,000 and $ 8,923,000 for the three and nine months ended September 30, 2024, respectively,

and included the amortization of debt issuance costs and discount of $ 656,000 and $ 1,861,000 , respectively.

Oaktree Loan Due 2026

In March 2023, the Company

entered into a Credit Agreement and Guaranty (the “Oaktree Loan”) with Oaktree, providing for a senior secured term loan

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

Upon entering into the Oaktree Loan, the Company drew a principal

amount of $ 65,000,000 (“Tranche A”) from the Oaktree Loan and used the net proceeds to repay all amounts owed by the Company

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

Riley Commercial Capital, LLC on December 14,

The additional principal loan amount of up to $ 35,000,000 available under the Oaktree Loan (“Tranche B”) was available

to the Company upon the commercialization of TRIESENCE.

Since Tranche B was not drawn by the Company on or before March 27, 2024, the

amount available under Tranche B was reduced to $ 30,000,000 .

While undrawn, the Company was required to pay a commitment fee related to

Tranche B amount equal to 2 % per annum, payable quarterly.

This fee was recorded within prepaid expenses and other current assets and

was being amortized on a straight-line basis over the access period.

In July 2023, the Company entered into the First

Amendment to the Oaktree Loan (the “Oaktree Amendment”).

Under the Oaktree Amendment, the overall credit facility size was

increased from $ 100,000,000 to $ 112,500,000 .

The Company drew down a principal amount of $ 12,500,000 (the “Loan Increase”)

to fund the initial one-time payment associated with product acquisitions and for other working capital and general corporate purposes.

No other material changes to the Oaktree Loan were made pursuant to the Oaktree Amendment.

Following entry into the Oaktree Amendment

and the funding of the Loan Increase upon closing of certain product acquisitions, the Company had drawn down a total principal loan amount

of $ 77,500,000 under the Oaktree Loan.

In October 2024, the Company entered into the

Second Amendment to Credit Agreement and Guaranty with Oaktree (“Second Amendment”).

Upon satisfaction of certain conditions

to funding, the Company drew down the principal amount of the Tranche B commitment of $ 30,000,000 (the “$ 30,000,000 Draw”)

to partially fund a one-time milestone payment to Novartis.

Under its asset purchase agreement with Novartis, the Company made a one-time

milestone payment to Novartis equal to $ 37,000,000 upon the commercial availability of TRIESENCE, which the Company paid in October 2024.

In connection with the Second Amendment and following the $ 30,000,000 Draw, 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 Loan.

The Oaktree Loan is secured

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

The Oaktree Loan has a maturity

date of January 19, 2026 and carries an interest rate equal to the Secured Overnight Financing Rate plus 6.5 % per annum (totaling 11.003 %

at March 31, 2025).

The Oaktree Loan also carries an exit fee equal to 3.5 % of the aggregate principal amount owed, payable at maturity.

The total exit fee of $ 3,763,000 has been recorded as a debt discount.

The original issue discount, fees and expenses (including the exit

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

The Oaktree Loan requires quarterly

interest-only payments with all of the unpaid principal, interest and fees due on the maturity date, January 19, 2026.

The Oaktree Loan contains

customary guarantees and covenants, including financial covenants related to minimum liquidity and minimum net revenues.

As of March 31,

2025, the Company was in compliance with the financial covenants.

Interest expense related

to the Oaktree Loan totaled $ 2,995,000 and $ 5,660,000 for the three and nine months ended

September 30, 2023, respectively, and included the amortization of debt issuance costs and discount of $ 567,000

and $ 1,093,000 , respectively.

Oaktree Loan carries an exit fee equal to 3.5 % of the aggregate principal amount owed, payable at maturity.

As of September 30, 2024

and December 31, 2023, the Company had recorded in accrued expenses the total exit fee liability of $ 2,713,000 and $ 2,713,000 , respectively.

– 11.875% Senior Notes Due 2027

December 2022 and January 2023, the Company closed offerings of $ 40,250,000 aggregate principal amount of 11.875 % senior notes due December

2027 (the “2027 Notes”).

Interest expense related to the 2027 Notes totaled $ 1,376,000

and $ 4,121,000 for the three and nine months ended September 30, 2024, respectively, and included amortization of debt issuance costs

and debt discount of $ 181,000 and $ 537,000 , respectively.

Interest expense related to the 2027 Notes totaled $ 1,375,000 and $ 4,141,000

for the three and nine months ended September 30, 2023, respectively, and included amortization of debt issuance costs and debt discount

of $ 180,000 and $ 556,000 , respectively.

– 8.625% Senior Notes Due 2026

April and September 2021, the Company closed offerings (including an over-allotment exercise in May 2021) of $ 75,000,000

aggregate principal amount of 8.625 %

senior notes due April

2026 (the “2026 Notes”).

expense related to the 2026 Notes totaled $ 1,814,000

and $ 5,438,000

for the three and nine

months ended September 30, 2024, respectively, and included amortization of debt issuance costs and debt discount of $ 197,000

and $ 587,000 ,

respectively.

to the Oaktree Loan totaled $ 3,859,000 and $ 2,953,000 for the three months ended March 31, 2025 and 2024, respectively, and included the

amortization of debt issuance costs and discount of $ 906,000 and $ 603,000 , respectively.

HROWL – 8.625% Senior Notes Due 2026

In April 2021, the Company

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

$ 5,000,000 of such notes pursuant to the full exercise of the underwriters’ option to purchase additional notes (collectively, the

“April Notes”).

The April Notes were sold to investors at a par value of $ 25.00 per note and the offering resulted in net

proceeds to the Company of approximately $ 51,909,000 after deducting underwriting discounts and commissions and other offering expenses

of $ 3,091,000 .

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

amount of such notes (the “September Notes,” and together with the April Notes, the “2026 Notes”), at a price

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

of the April Notes.

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

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

The September Notes are

treated as a single series with the April Notes under the indenture governing the April Notes, dated as of April 20, 2021, and have the

same terms as the April Notes (other than the initial offering price and issue date).

The 2026 Notes are senior unsecured obligations

of the Company and rank equally in right of payment with all of the Company’s other existing and future senior unsecured and unsubordinated

indebtedness.

The 2026 Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured

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

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

Interest on the 2026 Notes is payable quarterly in arrears on January

31, April 30, July 31 and October 31 of each year.

The 2026 Notes will mature on April 30, 2026 .

The issuance costs were recorded as a

debt discount and are being amortized as interest expense, net of the amortization of the premium on note issuance, over the term of the

2026 Notes using the effective interest rate method.

Prior to February 1,

2026, the Company may, at its option, redeem the 2026 Notes, in whole at any time or in part from time to time, at a redemption price

equal to 100% of the principal amount of the 2026 Notes to be redeemed , plus a make-whole amount, if any, plus accrued and unpaid interest

to, but excluding, the date of redemption.

The Company may redeem the 2026 Notes for cash in whole or in part at any time at its option

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

to, but excluding, the date of redemption.

On and after any redemption date, interest will cease to accrue on the redeemed Notes.

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

Interest expense related to the 2026 Notes totaled

and $ 5,436,000

for the three and nine

months ended September 30, 2023, respectively, and included amortization of debt issuance costs and debt discount of $ 197,000

and $ 585,000 ,

respectively.

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

$ 1,810,000 and $ 1,812,000 for the three months ended March 31, 2025 and 2024, respectively, and included amortization of debt issuance

costs and discount of $ 193,000 and $ 195,000 , respectively.

HROWM - 11.875% Senior

Notes Due 2027

In December 2022 and

in January 2023, the Company closed an offering of $ 35,000,000 and $ 5,250,000 , respectively, aggregate principal amount of 11.875 % senior

notes due in December 2027 (the “2027 Notes”).

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

and the offering resulted in net proceeds to the Company of approximately $ 36,699,000 after deducting underwriting discounts and commissions

and other offering expenses of $ 3,551,000 .

The 2027 Notes are senior

unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future senior

unsecured and unsubordinated indebtedness.

The 2027 Notes are effectively subordinated in right of payment to all of the Company’s

existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s

subsidiaries, including trade payables.

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

Interest on the 2027 Notes is payable

quarterly in arrears on January 31, April 30, July 31 and October 31 of each year.

The 2027 Notes will mature on December 31, 2027 .

issuance costs were recorded as a debt discount and are being amortized as interest expense over the term of the 2027 Notes using the

effective interest rate method.

The Company may redeem

the 2027 Notes for cash in whole or in part at any time at its option ( i) prior to December 31, 2025, at a price equal to $25.50 per note,

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

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

after December 31, 2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to,

but excluding, the date of redemption.

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

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

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

The 2027 Notes trade on the Nasdaq

Stock Market LLC under the symbol “HROWM.”

Interest expense related

to the 2027 Notes totaled $ 1,371,000 and $ 1,373,000 for the three months ended March 31, 2025 and 2024, respectively, and included the

amortization of debt issuance costs and discount of $ 176,000 and $ 178,000 , respectively.

A summary of the Company’s

current portion of debt at March 31, 2025 and December 31, 2024 is described as follows:

SCHEDULE OF LONG TERM DEBT

September 30,

Oaktree Loan due January 2026

$ 111,263,000

Unamortized debt issuance costs

( 2,950,000 )

payable current, net

$ 108,313,000

summary of the Company’s non-current portion of debt at March 31, 2025 and December 31, 2024 is described as follows:

8.625% Senior Notes due April 2026

1 unchanged sentence

Oaktree Loan due January 2026

Notes payable gross

Unamortized debt issuance costs, net of premium

Notes payable non-current,

Unamortized debt issuance costs

( 2,749,000 )

( 6,974,000 )

Notes payable net

payable non-current, net

$ 112,501,000

$ 219,539,000

the three and nine months ended September 30, 2024, the total effective interest rate of the Company’s debt was 11.03 % and 11.17 %,

respectively, and 10.78 % and 10.91 % for the same periods in 2023, respectively .

September 30, 2024, future minimum payments under the Company’s debt were as follows:

the three months ended March 31, 2025 and 2024, the total effective interest rate of the Company’s debt was 10.73 %

respectively.

At March 31, 2025, future minimum payments under

the Company’s debt were as follows:

SCHEDULE OF FUTURE MINIMUM PAYMENT UNDER NOTES PAYABLES

4 unchanged sentences

Notes payable, gross principal amount due

unamortized debt issuance costs, net of premium

current portion, net of unamortized discount

( 108,313,000 )

Notes payable, net of unamortized debt issuance costs

unamortized discount, net of premium

( 5,699,000 )

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

These lease agreements have remaining

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

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

operating lease for 38,153 square feet of lab, warehouse and office space in Ledgewood, New Jersey that expires in July 2027 , with

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

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

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

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

into in January 2024 that added 2,861 square feet of space.

operating lease for 5,500 square feet of office space in Nashville, Tennessee, which commenced in January 2020 and will expire in

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

The Company does not intend to exercise its

option to extend the term of this lease.

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

expire in September 2027 .

March 2024, the Company entered into an operating lease for 17,625 square feet of office space in Nashville, Tennessee that commenced

in August 2024 and has a seven -year term with an option to extend the term for two additional five-year periods .

This office space

serves as the Company’s new corporate headquarters.

Commensurate with the commencement date of the lease, the Company recognized

an operating right of use asset and liability of $ 2,853,000 .

September 30, 2024, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases

held by the Company were 7.85 % and 10.4 years, respectively.

the three and nine months ended September 30, 2024, cash paid for amounts included for the operating lease liabilities was $ 327,000 and

$ 972,000 , respectively, and $ 310,000 and $ 921,000 for the same periods in 2023, respectively.

During the three and nine months ended

September 30, 2024, the Company recorded operating lease expense of $ 414,000 and $ 1,053,000 , respectively, and $ 309,000 and $ 926,000

for the same periods in 2023, respectively, which is included in selling, general and administrative expenses.

lease payments under operating leases as of September 30, 2024 were as follows :

Notes payable, net of unamortized discount

$ 112,501,000

The Company leases office and laboratory

space under the non-cancelable operating leases listed below.

Except as indicated, these lease agreements have remaining terms

between two 2

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

· An operating lease for 38,200 square feet of lab, warehouse and office space in Ledgewood, New

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

This lease was amended,

effective July 2020, to extend the term of the original lease and add 1,400 of additional square footage to the lease, amended

again in May 2021 to extend the term of the lease to July 2027 and add 8,900 square feet of space, and amended in May 2023 to

add another 2,900 square feet of space to the existing lease, which the Company took possession of in January 2024.

· An operating lease for 17,700 square feet of office space in Nashville, Tennessee that expires in June

2032 , and includes options to extend the lease term to June 2042.

· An operating lease for 11,600 square feet of lab and office space in Nashville, Tennessee which

commenced in September 2022 and expires in September 2027 .

At March 31, 2025, the weighted average incremental

borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 8.04 % and 9.98 years, respectively.

During the three months ended March 31, 2025 and

2024, cash paid for amounts included for the operating lease liabilities was $ 281,000 and $ 327,000 , respectively.

During the three months

ended March 31, 2025 and 2024, the Company recorded operating lease expense of $ 385,000 and $ 319,000 , respectively, which is included

in selling, general and administrative expenses.

Future lease payments under operating leases as

of March 31, 2025 were as follows :

OF FUTURE LEASE PAYMENTS UNDER OPERATING LEASES

8 unchanged sentences

STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

the nine months ended September 30, 2024, the Company issued 141,628 shares of common stock and received proceeds of $ 1,005,000 upon the

exercise of options to purchase 141,628 shares of common stock with exercise prices ranging from $ 1.70 to $ 25.86 per share.

the nine months ended September 30, 2024, the Company issued 32,580

shares of common stock upon the cashless exercise of options to purchase 39,237

shares with exercise prices ranging from $ 1.70

to $ 8.00 per share.

During the nine months ended September 30, 2024, the Company issued 44,860

shares of common stock upon the cashless exercise of options to purchase 90,000 shares at an exercise price of $ 7.37 .

The Company withheld

29,107 shares of common stock for payroll tax withholdings totaling $ 1,205,000 .

the nine months ended September 30, 2024, 45,000 RSUs granted in February 2021 to Andrew R.

Boll, the Company’s Chief Financial

Officer, vested, and 26,520 shares of the Company’s common stock were issued to Mr.

Boll, net of 18,480 shares of common stock

withheld for payroll tax withholdings totaling $ 197,000 .

the nine months ended September 30, 2024, 150,000 RSUs granted in February 2021 to Mark L.

Baum, the Company’s Chief Executive

Officer, vested, and 90,164 shares of the Company’s common stock were issued to Mr.

Baum, net of 59,836 shares of common stock

withheld for payroll tax withholdings totaling $ 638,000 .

the nine months ended September 30, 2024, 30,000 RSUs granted in February 2021 to John Saharek, the Company’s Chief Commercial

Officer, vested, and 17,384 shares of the Company’s common stock were issued to Mr.

Saharek, net of 12,616 shares of common stock

withheld for payroll tax withholdings totaling $ 135,000 .

the nine months ended September 30, 2024, 50,000 RSUs granted in February 2021 to various other employees, vested, and 32,452 shares

of the Company’s common stock were issued, net of 17,548 shares of common stock withheld for payroll tax withholdings totaling

the nine months ended September 30, 2024, the Company issued 57,517 shares of its common stock underlying RSUs held by directors that

ceased providing services to the Company.

The RSUs had previously vested, including 3,872 RSUs that vested during the nine months ended

September 30, 2024, but the issuance and delivery of the shares were deferred until the director ceased providing services to the Company.

the nine months ended September 30, 2024, 34,008 shares of the Company’s common stock underlying RSUs issued to directors vested,

but the issuance and delivery of these shares are deferred until the applicable directors cease providing services to the Company.

During the nine months ended September 30, 2024, 3,667 shares of the Company’s

common stock underlying RSUs issued to consultants vested, but the issuance and delivery of these shares has not occurred.

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

Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27, 2013 (as amended,

During the three months ended March 31, 2025,

the Company issued 2,743 shares of common stock and received proceeds of $ 23,000 upon the exercise of options to purchase 2,743 shares

of common stock with exercise prices ranging from $ 6.85 to $ 15.17 per share.

During the three months ended March 30,

2025, the Company issued 29,214

shares of its common stock underlying RSUs held by a director that ceased providing services to the Company.

previously vested, including 4,173 RSUs

that vested during the three months ended March 31, 2025, but the issuance and delivery of the shares were deferred until the

director ceased providing services to the Company.

During the three months ended March 31, 2025,

8,904 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares

are deferred until the applicable person ceases providing services to the Company.

During the three months ended March 31, 2025,

4,333 shares of the Company’s common stock underlying RSUs issued to consultants vested, but the issuance and delivery of these

shares has not occurred.

Stock Option Plan

On September 17, 2007, the Company’s Board

of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November

5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27, 2013 (as amended, the “2007 Plan”).

The 2007 Plan

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

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

are otherwise cancelled/forfeited.

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

2017 Incentive Stock and Awards Plan which was subsequently amended on June 3, 2021 (as amended, the “2017 Plan” together

with the 2007 Plan, the “Plans”).

As of September 30, 2024, the 2017 Plan provides for the issuance of a maximum of 6,000,000

shares of the Company’s common stock.

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

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

persons in the Company’s development and financial success.

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

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

restricted stock.

reached its term in September 2017, and we can no longer issue additional awards under this plan, however, options previously issued under

the 2007 Plan will remain outstanding until they are exercised, reach their maturity or are otherwise cancelled/forfeited.

2017, the Company’s Board of Directors and stockholders adopted the Company’s 2017 Incentive Stock and Awards Plan which was

subsequently amended on June 3, 2021 (as amended, the “2017 Plan” together with the 2007 Plan, the “Plans”).

of March 31, 2024, the 2017 Plan provides for the issuance of a maximum of 6,000,000 shares of the Company’s common

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

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

development and financial success.

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

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

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

The Company had

53,344 shares available for future issuances under the 2017 Plan at September 30, 2024.

summary of stock option activity under the Plans for the nine months ended September 30, 2024 is as follows:

The Company had 70,642 shares

available for future issuances under the 2017 Plan at March 31, 2025.

Stock Options

A summary of stock option activity under the Plans for the three months

ended March 31, 2025 is as follows:

SCHEDULE OF STOCK OPTION PLAN ACTIVITY

1 unchanged sentence

Weighted Average Exercise Price

Weighted Average Remaining Contractual

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

3 unchanged sentences

Options cancelled/forfeited

Options outstanding – September 30, 2024

Options outstanding – March 31, 2025

Options exercisable

Options vested and expected to vest

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

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

price lower than the market price on September 30, 2024, based on the closing price of the Company’s common stock of $ 44.96 on

the nine months ended September 30, 2024, the Company granted stock options to certain employees.

The stock options were granted with

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

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

Vesting terms for options granted to employees

during the nine months ended September 30, 2024 included the following vesting schedule:

25% of the shares subject to the option vest

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

become exercisable quarterly in equal installments thereafter over three years .

Certain option awards provide for accelerated vesting

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

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

The expected term

of options granted to employees and directors was determined in accordance with the “simplified approach,” as the Company

has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior.

The expected risk-free

interest rate is based on the U.S.

Treasury yield for a period consistent with the expected term of the option in effect at the time

of the grant.

The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual

effect differs from those estimates.

For option grants to employees and directors, the Company assigns a forfeiture factor of 10 %.

factors could change in the future, which would affect the determination of stock-based compensation expense in future periods.

table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions

used for valuing options granted to employees:

The aggregate intrinsic value in the table above

represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option

holders had exercised and immediately sold all shares underlying options with an exercise price lower than the market price on March 31,

2025, based on the closing price of the Company’s common stock of $ 26.60 on that date.

During the three months ended March 31, 2025,

the Company granted stock options to certain employees.

The stock options were granted with an exercise price equal to the current market

price of the Company’s common stock, as reported by the securities exchange on which the common stock was then listed, at the grant

date and have contractual terms of ten years.

Vesting terms for options granted to employees during the three months ended March 31, 2025

included the following vesting schedule:

25% of the shares subject to the option vest and become exercisable on the first anniversary

of the grant date and the remaining 75% of the shares subject to the option vest and become exercisable quarterly in equal installments

thereafter over three years.

Certain option awards provide for accelerated vesting if there is a change in control (as defined in the

Plans) and in the event of certain modifications to the option award agreement.

The fair value of each option award is estimated

on the date of grant using the Black-Scholes-Merton option pricing model.

The expected term of options granted to employees and directors

was determined in accordance with the “simplified approach,” as the Company has limited, relevant, historical data on employee

exercises and post-vesting employment termination behavior.

The expected risk-free interest rate is based on the U.S.

Treasury yield for

a period consistent with the expected term of the option in effect at the time of the grant.

The financial statement effect of forfeitures

is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates.

For option grants to employees

and directors, the Company assigns a forfeiture factor of 10 %.

These factors could change in the future, which would affect the determination

of stock-based compensation expense in future periods.

Utilizing these assumptions, the fair value is determined at the date of grant.

The table below illustrates the fair value per

share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to

SCHEDULE OF FAIR VALUE ASSUMPTIONS

Weighted-average

fair value of options granted

terms (in years)

67.78 - 72.95 %

interest rate

following table summarizes information about stock options outstanding and exercisable at September 30, 2024:

Weighted-average fair value of options granted

Expected terms (in years)

Expected volatility

Risk-free interest rate

Dividend yield

The following table summarizes information about

stock options outstanding and exercisable at March 31, 2025:

SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE

of Exercise Prices

Average Remaining Contractual Life in Years

of September 30, 2024, there was approximately $ 2,071,000 of total unrecognized compensation expense related to unvested stock options

granted under the Plans which is expected to be recognized over the weighted-average remaining vesting period of 2.83 years.

The stock-based

compensation for all stock options was $ 160,000 and $ 416,000 during the three and nine months ended September 30, 2024, respectively,

and $ 154,000 and $ 617,000 during the same periods in 2023, respectively.

intrinsic value of options exercised during the nine months ended September 30, 2024 was $ 6,651,000 .

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

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

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

summary of the Company’s RSU activity and related information for the nine months ended September 30, 2024 is as follows:

Options Outstanding

Options Exercisable

Range of Exercise Prices

Number Outstanding

Weighted Average Remaining Contractual Life in Years

$ 1.47 - $ 1.70

$ 2.40 - $ 2.60

$ 4.49 - $ 5.72

$ 6.75 - $ 7.26

$ 7.60 - $ 45.64

$ 1.47 - $ 45.64

31, 2025, there was approximately $ 2,653,000 of total unrecognized compensation expense related to unvested stock options granted

under the Plans.

That expense is expected to be recognized over the weighted-average remaining vesting period of 2.65 years.

The stock-based compensation for all stock options was $ 199,000 and $ 126,000 during the three months ended March 31, 2025 and

2024, respectively.

The intrinsic value of options exercised during

the three months ended March 31, 2025 was $ 59,000 .

Restricted Stock Units

RSU awards are granted subject to certain vesting

requirements and other restrictions, including time-based performance and market-based vesting criteria.

The grant date fair value of

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

the vesting period of the RSUs.

A summary of the Company’s RSU activity

and related information for the three months ended March 31, 2025 is as follows:

SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY

3 unchanged sentences

RSUs cancelled/forfeited

RSUs unvested - September 30, 2024

of September 30, 2024, the total unrecognized compensation expense related to unvested RSUs was approximately $ 7,324,000 , which is expected

to be recognized over a weighted-average period of 2 years, based on estimated and actual vesting schedules of the applicable RSUs.

The stock-based compensation for RSUs during the three and nine months ended September 30, 2024 was $ 587,000 and $ 1,494,000 , respectively,

and was $ 374,000 and $ 789,000 during the same periods in 2023, respectively.

Stock Units (Market-Based Vesting)

summary of the Company’s PSU activity and related information for the nine months ended September 30, 2024 is as follows:

RSUs unvested - March 31, 2025

31, 2025, the total unrecognized compensation expense related to unvested RSUs was approximately $ 5,677,000 , which is expected to be recognized

over a weighted-average period of 1.65 years, based on estimated and actual vesting schedules of the applicable RSUs.

The stock-based

compensation for RSUs during the three months ended March 31, 2025 and 2024 was $ 719,000 and $ 405,000 , respectively.

Performance Stock Units

A summary of the Company’s PSU activity

and related information for the three months ended March 31, 2025 is as follows:

SCHEDULE OF PERFORMANCE STOCK UNITS ACTIVITY

3 unchanged sentences

PSUs cancelled/forfeited

PSUs unvested – September 30, 2024

of September 30, 2024, the total unrecognized compensation expense related to unvested PSUs was approximately $ 7,277,000 , which is expected

to be recognized over a weighted-average period of 0.51 years, based on estimated and actual vesting schedules of the applicable PSUs.

The stock-based compensation for PSUs during the three and nine months ended September 30, 2024 was $ 3,638,000 and $ 10,915,000 , respectively,

and $ 3,948,000 and $ 10,115,000 during the same periods in 2023, respectively.

Compensation Summary

Company recorded stock-based compensation related to equity instruments granted to employees, directors and consultants as follows:

PSUs unvested – March 31, 2025

As of March 31, 2025,

there is no unrecognized compensation expense related to unvested PSUs.

The stock-based compensation for PSUs during the three months

ended March 31, 2025 and 2024 was $ 3,638,000 .

Stock-Based Compensation Summary

The Company recorded stock-based compensation

related to equity instruments granted to employees, directors and consultants as follows:

SCHEDULE OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES, DIRECTORS AND CONSULTANTS

the Three Months Ended

the Nine Months Ended

For the Three Months

Ended March 31,

Employees - selling, general and administrative

3 unchanged sentences

COMMITMENTS AND CONTINGENCIES

the ordinary course of business, the Company is involved in various legal proceedings, government investigations and other matters that

are complex in nature and have outcomes that are difficult to predict.

The Company describes legal proceedings and other matters that

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

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

the amount of the related loss can be reasonably estimated.

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

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

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

allegations and/or unique legal theories.

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

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

While it is not possible to accurately

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

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

results of operations, financial position or cash flows.

Science, Inc.

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

General and Other

In the ordinary course of business, the Company

is involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that

are difficult to predict.

The Company describes legal proceedings and other matters that are/were significant or that it believes could

become significant in this footnote.

The Company records accruals for loss contingencies

to the extent that it concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably

The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase

or decrease in the amount of a liability that has been accrued previously.

The Company’s legal proceedings involve

various aspects of its business and a variety of claims, some of which present novel factual allegations and/or unique legal theories.

Typically, a number of the matters pending against the Company are at early stages of the legal process, which in complex proceedings

of the sort the Company faces often extend for several years.

While it is not possible to accurately predict or determine the eventual

outcomes of matters that have not concluded, an adverse determination in one or more of the matters (whether discussed in this footnote

or not) currently pending may have a material adverse effect on the Company’s condensed consolidated results of operations, financial

position or cash flows.

Legal costs incurred for loss contingencies are expensed as incurred.

Ocular Science, Inc.

In July 2021, ImprimisRx,

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

and OSRX, Inc.

“OSRX”) in the U.S.

District Court for the Southern District of California, asserting claims for copyright infringement,

trademark infringement, unfair competition and false advertising (Lanham Act).

Since July 2021, the complaint has been amended and

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

The Court granted cross

motions for summary judgement on each party’s Lanham Act claims thus leaving only ImprimisRx, LLC’s copyright

infringement, trademark infringement and unfair competition claims for trial.

ImprimisRx, LLC is seeking damages from OSRX.

trial associated with this matter began during the month of November 2024 and is ongoing as of the date of this Quarterly

and Professional Liability

and professional liability litigation represents an inherent risk to all firms in the pharmaceutical and pharmacy industry.

traditional third-party insurance policies with regard to our product and professional liability claims.

Such insurance coverage at any

given time reflects current market conditions, including cost and availability, when the policy is written.

addition to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate

indemnification agreements with each of the Company’s directors and officers.

These agreements require the Company, among other

things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines

and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status

or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly

fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the

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

Several of the Company’s asset

purchase and license agreements contain customary representations, warranties, covenants and confidentiality provisions, and also contain

mutual indemnification obligations related primarily to performance under the respective agreements.

The Company also indemnifies its

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

These indemnities do not provide

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

Historically, the Company has not

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

condensed consolidated balance sheets.

Purchase, License and Related Agreements

Approved Product Acquisitions

recent years, the Company has acquired commercial and product rights to various FDA approved ophthalmic medications and products through

asset purchase, licenses, supply and/or other related agreements.

In general, in exchange for product and commercial rights these agreements

provide the counterparties with certain upfront and contingent milestone payments typically related to certain annual sales amounts and

manufacturing events, and in certain cases, per unit transfer prices and royalties on sales of some of the products.

(together, “OSRX”) in the U.S.

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

and false advertising (Lanham Act).

Since July 2021, the complaint had been amended and OSRX added counterclaims alleging ImprimisRx,

LLC was violating the Lanham Act with false advertising.

The Court granted cross motions for summary judgement on each party’s Lanham

Act claims thus leaving only ImprimisRx, LLC’s copyright infringement, trademark infringement and unfair competition claims for

Following a jury trial in November 2024, a jury found OSRX acted with malice, fraud, or oppression, willfully engaging in trademark

infringement and unfair competition under California and federal law and ImprimisRx, LLC received a $ 34,900,000 jury verdict award, which

includes $ 20,400,000 in punitive damages and $ 14,500,000 in actual damages.

Due to uncertainty regarding probability of collection, the

Company has not recognized any gains associated with the verdict award in the accompanying condensed consolidated financial statements.

Product and Professional Liability

Product and professional liability litigation

represents an inherent risk to all firms in the pharmaceutical and pharmacy industry.

We utilize traditional third-party insurance policies

with regard to our product and professional liability claims.

Such insurance coverage at any given time reflects current market conditions,

including cost and availability, when the policy is written.

to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate indemnification

agreements with each of the Company’s directors and officers.

These agreements require the Company, among other things, to indemnify

the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid

by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the Company’s

director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest,

and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the

individual may be entitled to indemnification by the Company.

Several of the Company’s asset purchase and license agreements contain

customary representations, warranties, covenants and confidentiality provisions, and also contain mutual indemnification obligations related

primarily to performance under the respective agreements.

The Company also indemnifies its lessors in connection with its facility leases

for certain claims arising from the use of the facilities.

These indemnities do not provide for any limitation of the maximum potential

future payments the Company could be obligated to make.

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

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

Asset Purchase, License and Related Agreements

FDA Approved Product Acquisitions

In recent years, the Company has acquired commercial

and product rights to various FDA approved ophthalmic medications and products through asset purchase, licenses, supply and/or other related

In general, in exchange for product and commercial rights these agreements provide the counterparties with certain upfront

and contingent milestone payments typically related to certain annual sales amounts and manufacturing events, and in certain cases, per

unit transfer prices and royalties on sales of some of the products.

During the three months ended March 31, 2025 and 2024, $ 2,173,000

and $ 274,000 were incurred under these agreements as royalty expenses, respectively.

The Company incurred $ 0 and $ 0 related to upfront

and milestone payments under these agreements during the three months ended March 31, 2025 and 2024.

As of March 31, 2025,

the remaining contingent consideration payable pursuant to these agreements were not considered probable and reasonably estimable and

therefore, no amount was accrued related to these contingent obligations during the three months ended March 31, 2025.

At the time contingent

consideration payable becomes probable and reasonably estimable, the additional consideration, if any, paid will be allocated to the assets

based on their initial estimated fair values as a percent of total purchase price.

Formulation Acquisitions

The Company has acquired and sourced intellectual

property rights related to certain proprietary innovations from certain inventors, innovator companies and related parties (the “Inventors”)

through multiple asset purchase agreements and license agreements.

In general, these agreements provide that the Inventors will cooperate

with the Company in obtaining patent protection for the acquired intellectual property and that the Company will use commercially reasonable

efforts to research, develop and commercialize a product based on the acquired intellectual property.

In addition, the Company has acquired

a right of first refusal on additional intellectual property and drug development opportunities presented by these Inventors.

In consideration for the acquisition of these

intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of certain milestones,

generally consisting of:

(1) a payment payable within 30 to 45 days after the issuance of the first patent in the United States arising

from the acquired intellectual property (if any);

(2) a payment payable within 30 days after the Company files the first investigational

new drug application (“IND”) with the U.S.

Food and Drug Administration (“FDA”) for the first product arising

from the acquired intellectual property (if any);

(3) for certain of the Inventors, a payment payable within 30 days after the Company

files the first new drug application with the FDA for the first product arising from the acquired intellectual property (if any);

(4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product

based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated

with such product.

If, following five years after the date of the applicable asset purchase agreement, the Company either (a) for certain

of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed

to generate royalty payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate

the applicable asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors.

During the three

and nine months ended September 30, 2024, $ 730,000

and $ 2,040,000 ,

respectively, were incurred under these agreements as royalty expenses, and $ 220,000

and $ 705,000 ,

respectively, during the same periods in 2023.

During the three and nine months ended September 30, 2024, $ 0

was incurred under these agreements related to

upfront and milestone payments under these agreements.

During the three and nine months ended September 30, 2023, the Company amended

the Sintetica Agreement to allow for early payment of previously accrued amounts for commercial related milestones associated with sales

of IHEEZO in exchange for a $ 550,000 reduction in the milestone amounts due, and as a result of this amendment, the Company reduced

the intangible asset value associated with IHEEZO by $ 550,000 and paid the remaining commercial milestone amount of $ 4,450,000 .

As of September 30, 2024, the remaining contingent consideration payable pursuant to these agreements were not considered probable

and reasonably estimable and therefore, no amount was accrued related to these contingent obligations during the three and nine months

ended September 30, 2024.

At the time contingent consideration payable becomes probable and reasonably estimable the additional consideration,

if any, paid will be allocated to the assets based on their initial estimated fair values as a percent of the total purchase price.

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

companies and related parties (the “Inventors”) through multiple asset purchase agreements and license agreements.

these agreements provide that the Inventors will cooperate with the Company in obtaining patent protection for the acquired intellectual

property and that the Company will use commercially reasonable efforts to research, develop and commercialize a product based on the

acquired intellectual property.

In addition, the Company has acquired a right of first refusal on additional intellectual property and

drug development opportunities presented by these Inventors.

consideration for the acquisition of these intellectual property rights, the Company is obligated to make payments to the Inventors based

on the completion of a milestone, generally consisting of:

(1) a payment payable within 30 to 45 days after the issuance of the

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

(2) a payment payable within 30 days after

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

Food and Drug Administration (“FDA”)

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

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

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

property (if any);

and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or

licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s

development costs associated with such product.

If, following five years after the date of the applicable asset purchase agreement, the

Company either (a) for certain of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where

data is derived, or (b) has failed to generate royalty payments to the Inventors for any product based on the acquired intellectual property,

the Inventors may terminate the applicable asset purchase agreement and request that the Company re-assign the acquired technology to

the Inventors.

During the three and nine months ended September 30, 2024, $ 453,000 and $ 949,000 , respectively, were incurred under these

agreements as royalty expenses and $ 300,000 and $ 951,000 , respectively, during the same periods in 2023.

and Marketing Agreements

Company has entered various sales and marketing agreements with certain organizations to provide exclusive and non-exclusive sales and

marketing representation services to Harrow in select geographies in the U.S.

in connection with the Company’s ophthalmic pharmaceutical

compounded formulations or related products.

the terms of the sales and marketing agreements, the Company was generally required to make commission payments equal to 10 % to 14 % of

net sales for products above and beyond the initial existing sales amounts .

In addition, the Company was required to make periodic milestone

payments to certain organizations in shares of the Company’s restricted common stock if net sales in the assigned territory reach

certain future levels by the end of their terms.

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

expenses during the three and nine months ended September 30, 2023, respectively.

Manufacturing

Company has entered into manufacturing agreements with respect to third-party contract manufacturers for its FDA approved pharmaceutical

Some of these contract manufacturing agreements require minimum annual order amounts.

The Company has committed to pay approximately

$ 2,728,000 related to contract manufacturing agreements for the year ending December 31, 2024.

months ended March 31, 2025 and 2024, $ 277,000 and $ 180,000 were incurred under these agreements as royalty expenses, respectively.

Contract Manufacturing

The Company had entered into manufacturing agreements

with respect to third-party contract manufacturers for its FDA approved pharmaceutical products.

Some of these contract manufacturing

agreements require minimum annual order amounts.

The Company has committed to pay approximately $ 8,527,000 related to contract manufacturing

agreements for the year ending December 31, 2025.

SEGMENTS AND CONCENTRATIONS

to the three months ended September 30, 2024, the Company operated its business on the basis of a single reportable segment due to the

lack of discrete, precise financial information available to the chief operating decision maker (“CODM”).

The CODM does not

review segment assets when assessing segment performance and deciding how to allocate resources.

During the three months ended September

30, 2024, refinements were made to the financial reporting information and the Company began reporting on two reportable segments which

were generally determined based on the decision-making structure of the Company and the grouping of similar products and services:

and ImprimisRx.

Branded segment includes activities of our FDA approved ophthalmology pharmaceutical products, including the out-licensing

of rights to certain of our branded products.

ImprimisRx segment represents activities in our ophthalmology-focused pharmaceutical compounding business.

contribution for the segments represents net revenues less cost of sales, certain general and administrative expenses, selling and marketing

expenses, and research and development expenses.

The Company operates in two reportable segments

which are generally determined based on the decision-making structure of the Company and the grouping of similar products and services:

Branded and ImprimisRx.

· The Branded segment includes activities of the Company’s FDA-approved ophthalmology

pharmaceutical products, including the out-licensing of rights to certain of our branded products.

· The ImprimisRx segment represents activities in the Company’s ophthalmology-focused

pharmaceutical compounding business.

Segment contribution for the segments represents

net revenues less cost of sales, certain general and administrative expenses, selling and marketing expenses, and research and development

The Company does not evaluate the following items at the segment level:

general and administrative expenses that result from shared infrastructure, including certain expenses associated with legal matters,

public company costs (e.g.

investor relations), board of directors and principal executive officers and other like shared expenses.

expenses within selling, general and administrative expenses that result from the impact of corporate initiatives.

· Selling, general and administrative expenses that result from shared infrastructure, including certain

expenses associated with legal matters, public company costs (e.g.

investor relations), Board of Directors and principal executive officers

and other like shared expenses.

· Operating expenses within selling, general and administrative expenses that result from the impact of

corporate initiatives.

primarily include integration, restructuring, acquisition and other shared costs.

select revenues and operating expenses including research and development expenses, amortization, and asset sales and impairments, net as not all

such information has been accounted for at the segment level, or such information has not been used by all segments.

net revenues, segment operating expenses and segment contribution information consisted of the following:

Corporate initiatives primarily include integration, restructuring, acquisition and other shared costs.

· Other select revenues and operating expenses including research and development expenses, amortization,

and asset sales and impairments, net as not all such information has been accounted for at the segment level, or such information has

not been used by all segments.

Segment net revenues, segment operating expenses

and segment contribution information consisted of the following:

OF SEGMENT NET REVENUES

Three Months Ended September 30, 2024

Product sales, net

Other revenues

Total revenues

Cost of sales

( 5,169,000 )

( 6,849,000 )

( 12,018,000 )

Operating expenses:

Selling, general and administrative

Research and development

Segment contribution

Research and development

Income from operations

Three Months Ended September 30, 2023

Three Months Ended March 31, 2025

Three Months Ended March 31, 2024

Product sales, net

2 unchanged sentences

Cost of sales

( 3,335,000 )

( 6,732,000 )

( 10,067,000 )

Operating expenses

2 unchanged sentences

Segment contribution

Research and development

Income from operations

Nine Months Ended September 30, 2024

Product sales, net

$ ( 3,076,000 )

Other revenues

Total revenues

Cost of sales

$ ( 2,273,000 )

( 20,704,000 )

( 35,110,000 )

Operating expenses:

Selling, general and administrative

Research and development

Segment contribution

Research and development

Loss from operations

$ ( 11,232,000 )

Nine Months Ended September 30, 2023

Product sales, net

Other revenues

Total revenues

Cost of sales

$ ( 6,928,000 )

( 19,942,000 )

( 28,338,000 )

Operating expenses:

Selling, general and administrative

Research and development

Segment contribution

Research and development

Income from operations

revenue is attributable to the United States.

All long-lived assets at September 30, 2024 and December 31, 2023 were located in the United

by segment are further described as follows:

Substantially all revenue is attributable to the

All long-lived assets at March 31, 2025 and December 31, 2024 were located in the U.S.

Revenues by segment are further described as follows:

OF REVENUES BY SEGMENT

For the Three Months Ended

For the Nine Months Ended

September 30,

Other products (Anterior Segment)

Other revenue, net

Other branded products

( 7,916,000 )

Other revenues

Branded revenue, net

1 unchanged sentence

Total revenues, net

$ 132,783,000

than IHEEZO, VEVYE, and one ImprimisRx product, no other products accounted for more than 10% of total revenues for the periods

and Supplier Concentrations

Substantially

all of the Company’s Branded sales are made to a third-party logistics wholesaler who sells the products to the end-user.

were no customers who comprised more than 10 % of ImprimisRx revenues for the three and nine months ended September 30, 2024 and 2023.

of September 30, 2024 and December 31, 2023, accounts receivable from a single customer accounted for 64 % and 80 %, respectively, of

total consolidated accounts receivable.

For the three and nine months ended September 30, 2024, revenues from a single customer accounted

for 46 % and 42 %, respectively, of total consolidated revenues.

For the three and nine months ended September 30, 2023, revenues from

a single customer accounted for 35 % and 23 %, respectively, of total consolidated revenues.

Company receives its active pharmaceutical ingredients from three main suppliers.

These suppliers collectively accounted for 50 % and

51 % of active pharmaceutical ingredient purchases during the three and nine months ended September 30, 2024, respectively, and 96 % and

79 % during the same periods in 2023, respectively.

Other than IHEEZO and VEVYE, no other products

accounted for more than 10% of total revenues for the periods presented.

Customer and Supplier Concentrations

Substantially all of the Company’s Branded

sales are made to third-party distributors who sell the products to pharmacies and to the end-users.

There were two customers who comprised

more than 10 % of the Company’s Branded revenues for the three months ended March 31, 2025 and one customer who comprised more than

10 % of the Company’s Branded revenues for the three months ended March 31, 2024.

There were no customers who comprised more than

10 % of ImprimisRx revenues for the three months ended March 31, 2025 and 2024.

As of March 31, 2025 and December 31, 2024, accounts receivable

from two customers accounted for 90 % and 94 %, respectively, of total consolidated accounts receivable.

The Company received its active pharmaceutical

ingredients from three main suppliers during the three months ended March 31, 2025 and 2024, respectively.

These suppliers collectively

accounted for 67 % and 85 % of active pharmaceutical ingredient purchases during the three months ended March 31, 2025 and 2024, respectively.

SUBSEQUENT EVENTS

Company has performed an evaluation of events occurring subsequent to September 30, 2024 through the filing date of this Quarterly Report

on Form 10-Q.

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

October 2024, the Company entered into the Second Amendment to Credit Agreement and Guaranty with Oaktree (“Second Amendment”).

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 a one-time milestone payment to Novartis Technology,

LLC and Novartis Innovative Therapies AG (together, “Novartis”).

Under its asset purchase agreement with Novartis, the Company

made a one-time milestone payment to Novartis equal to $ 37,000,000 upon the commercial availability of TRIESENCE, which the Company paid

in October 2024.

In connection with the Second Amendment, the Company incurred approximately $ 150,000 of costs.

The Company has performed an evaluation of events

occurring subsequent to March 31, 2025 through the filing date of this Quarterly Report on Form 10-Q.

Based on its evaluation, no events

other than those described below need to be disclosed.

In April 2025, the Company issued 9,670 shares

of its common stock underlying RSUs held by employees of the Company, net of an aggregate of 2,830

shares of the Company’s common stock were withheld from issuance by the Company for payroll tax obligations totaling $ 65,000 .

In May 2025, the Company issued 14,382 shares

of its common stock underlying RSUs held by consultants of the Company.

Settlement of Performance Stock Units

In April 2025, the Company settled 1,567,913 outstanding

PSUs as a result of the achievement of the total stock price targets (“TSP”) set forth in equity incentive awards (the “PSU

Agreements”) previously issued to members of the Company’s management team in 2023 (the “2023 Awards”).

Awards were separated into four tranches and required that the Company achieve and maintain certain TSPs ranging from $ 25

to $ 50 per share during the five-year period following the grant date and a two-year minimum service period.

In connection with the

Second Amendment and following the $ 30,000,000 Draw, 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 Loan.

In November 2024, the Company became aware of a cybersecurity incident that involved unauthorized access of an employee’s

email account.

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

Company, along with its external cybersecurity experts, is continuing to work diligently to fully investigate and assess the impact of

the incident and has notified, and is cooperating with, federal law enforcement.

As the investigation of the incident is ongoing, the

full scope, nature and impact of the incident are not yet fully known.

settlement of the 2023 Awards, an aggregate of 1,021,330 shares of the Company’s common stock were issued and an aggregate of 546,583 shares

of the Company’s common stock were withheld from issuance for payroll tax obligations totaling $ 12,621,000 .

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

What changed 10-Q

Item 1. Financial Statements