What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-14 · 269 added, 295 removed, 25 unchanged (96% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

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

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10-Q (this “Quarterly Report”).

Our condensed consolidated financial statements have been prepared and, unless otherwise

stated, the information derived therefrom as presented in this discussion and analysis is presented, in accordance with accounting principles

Our condensed consolidated financial statements have been prepared and, unless otherwise stated,

the information derived therefrom as presented in this discussion and analysis is presented, in accordance with accounting principles

generally accepted in the United States of America (“GAAP”).

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in our common stock.

We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in

our other reports filed with the U.S.

Securities and Exchange Commission (the “SEC”), including our Annual Report on Form

10-K for the fiscal year ended December 31, 2023 and subsequent reports, which discuss our business in greater detail.

As used in this

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

“us” and “our” refer to Harrow, Inc.

and its consolidated subsidiaries, including ImprimisRx, LLC, ImprimisRx

NJ, LLC dba ImprimisRx, Imprimis NJOF, LLC, Harrow IP, LLC and Harrow Eye, LLC.

In this discussion and analysis, we refer to our consolidated

subsidiaries ImprimisRx, LLC, ImprimisRx NJ, LLC and Imprimis NJOF, LLC collectively as “ImprimisRx.”

addition to historical information, the following discussion contains forward-looking statements regarding future events and our future

In some cases, you can identify forward-looking statements by terminology such as “will,” “may,”

“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”

“predicts,” “forecasts,” “potential” or “continue” or the negative of these terms or

other comparable terminology.

All statements made in this Quarterly Report other than statements of historical fact are forward-looking

These forward-looking statements involve risks and uncertainties and reflect only our current views, expectations and assumptions

with respect to future events and our future performance.

If risks or uncertainties materialize or assumptions prove incorrect, actual

results or events could differ materially from those expressed or implied by such forward-looking statements.

Risks that could cause

actual results to differ from those expressed or implied by the forward-looking statements we make include, among others, risks related

liquidity or results of operations;

our ability to successfully implement our business plan, develop and commercialize our products,

product candidates and proprietary formulations in a timely manner or at all, identify and acquire additional products, manage our pharmacy

operations, service our debt, obtain financing necessary to operate our business, recruit and retain qualified personnel, manage any

growth we may experience and successfully realize the benefits of our previous acquisitions and any other acquisitions and collaborative

arrangements we may pursue;

competition from pharmaceutical companies, outsourcing facilities and pharmacies;

general economic and business

conditions, including inflation and supply chain challenges;

regulatory and legal risks and uncertainties related to our pharmacy operations

and the pharmacy and pharmaceutical business in general;

physician interest in and market acceptance of our current and any future formulations

and compounding pharmacies generally;

and the other risks and uncertainties described under the heading “Risk Factors” in

Part II, Item 1A of this Quarterly Report and in our other filings with the SEC.

You should not place undue reliance on forward-looking

Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation

to revise or publicly update any forward-looking statement for any reason.

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

products for the U.S.

Harrow helps U.S.

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

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

We own commercial

rights to one of the largest portfolios of branded ophthalmic pharmaceutical products in North America, all of which are marketed under

the Harrow name.

We also own and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding

Affecting Our Performance

believe the primary factors affecting our performance are (1) our ability to increase revenues of our branded pharmaceutical products,

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

(2) potential and ongoing regulatory-related restrictions, (3) our ability to optimize pricing and obtain reimbursement options for our

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

that we have not yet made commercially available.

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

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

All of these activities will require significant costs and other resources,

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

See “Liquidity and Capital Resources” below.

following is a summary of selected significant developments affecting our business that occurred since December 31, 2023.

For additional

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

Cybersecurity Incident

In November 2024, we 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.

detected the incident in a time that management believes minimized any financial, operational or reputational risk to the Company, we

believe this early detection will result in an immaterial impact to the Company’s financial results and at no point was our ability

to generate revenues disrupted.

We, along with our external cybersecurity experts, are continuing to work diligently to fully investigate

and assess the impact of the incident and we have notified, and are 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.

Re-Launch, Oaktree Second Amendment and Draw

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

qualification batches of the product.

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

$37,000,000 to Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”) pursuant to terms of

an asset purchase agreement between Novartis and the Company.

Also, during October 2024, we entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement and Guaranty originally entered into

on March 27, 2023, as amended by that certain First Amendment to Credit Agreement and Guaranty and Consent, dated as of July 18,

2023 (as amended, the “Oaktree Loan”), with the lenders from time to time party thereto and Oaktree Fund Administration,

LLC, as administrative agent for the lenders (“Oaktree”).

Upon satisfaction of certain conditions to funding,

the Company drew down the principal amount of $30,000,000 (the “$30,000,000 Draw”) under a pre-existing commitment under

the Oaktree Loan to partially fund the one-time payment to Novartis.

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

under the Oaktree Loan.

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

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

In addition, Oaktree agreed to exclude

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

No other material changes to the

Oaktree Loan were provided in the Second Amendment.

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

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

Apotex - Canadian Out-License

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

Under the terms of the agreement,

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

(cyclosporine ophthalmic emulsion) 0.1% and Cationorm PLUS.

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

for in Canada:

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

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

In exchange for these

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

on net sales of the Apotex Products.

Reimbursement

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

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

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

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

In March 2024, we received communication

from a representative at CMS that the inclusion of J-Code 2403 in CMS’s April 2024 quarterly drug pricing file of the average sales

prices (ASP) of some Medicare Part B-covered drugs and biologicals confirms that IHEEZO is separately payable in the physician office

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

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

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

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

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

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

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

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

We partnered with various entities including PhilRx,

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

of Operations

following period-to-period comparisons of our financial results for the three and nine months ended September 30, 2024 and 2023 are not

necessarily indicative of results for any future period.

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

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

arrangements.

The following presents our revenues:

We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our

other reports filed with the U.S.

Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K

for the fiscal year ended December 31, 2024 and subsequent reports, which discuss our business in greater detail.

As used in this discussion

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

and “our” refer to Harrow, Inc.

and its consolidated subsidiaries, including ImprimisRx, LLC, ImprimisRx NJ, LLC dba ImprimisRx,

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

In this discussion and analysis, we refer to our consolidated subsidiaries ImprimisRx,

LLC, ImprimisRx NJ, LLC and Imprimis NJOF, LLC collectively as “ImprimisRx.”

addition to historical information, the following discussion contains forward-looking statements regarding future events and our

future performance.

In some cases, you can identify forward-looking statements by terminology such as “will,”

“may,” “should,” “expects,” “plans,” “anticipates,”

“believes,” “estimates,” “predicts,” “forecasts,” “potential” or

“continue” or the negative of these terms or other comparable terminology.

All statements made in this Quarterly Report

other than statements of historical fact are forward-looking statements.

These forward-looking statements involve risks and

uncertainties and reflect only our current views, expectations and assumptions with respect to future events and our future

If risks or uncertainties materialize or assumptions prove incorrect, actual results or events could differ materially

from those expressed or implied by such forward-looking statements.

Risks that could cause actual results to differ from those

expressed or implied by the forward-looking statements we make include, among others, risks related to:

liquidity or results of

our ability to successfully implement our business plan, develop and commercialize our products, product candidates and

proprietary formulations in a timely manner or at all, identify and acquire additional products, manage our pharmacy operations,

refinance and otherwise service our debt, obtain financing necessary to operate our business, recruit and retain qualified

personnel, manage any growth we may experience and successfully realize the benefits of our previous acquisitions and any other

acquisitions and collaborative arrangements we may pursue;

the ongoing communications with the U.S.

Food and Drug Administration

relating to compliance and quality plans at our outsourcing facility in New Jersey;

competition from pharmaceutical companies,

outsourcing facilities and pharmacies;

general economic and business conditions, including inflation and supply chain challenges;

regulatory and legal risks and uncertainties related to our pharmacy operations and the pharmacy and pharmaceutical business in

physician interest in and market acceptance of our current and any future formulations and compounding pharmacies

and the other risks and uncertainties described under the heading “Risk Factors” in Part II, Item 1A of this

Quarterly Report and in our other filings with the SEC.

You should not place undue reliance on forward-looking statements.

Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation to

revise or publicly update any forward-looking statement for any reason.

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

pharmaceutical products for the U.S.

eyecare professionals preserve the gift of sight by making our

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

Americans each year.

We own commercial rights to one of the largest portfolios of branded ophthalmic pharmaceutical products in

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

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

leading ophthalmology-focused pharmaceutical-compounding businesses.

Factors Affecting Our Performance

We believe the primary factors

affecting our performance are our ability to increase revenues of our branded pharmaceutical products, proprietary compounded formulations

and certain non-proprietary products, grow and gain operating efficiencies in our operations, avoid or mitigate any potential regulatory-related

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

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

We believe we have built

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

All of these activities

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

See “Liquidity

and Capital Resources” below.

Recent Developments

following describes certain developments in 2025 to date that are important to understand our financial condition and results of operations.

See the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information

about each of these developments.

VEVYE Access for All

In March 2025, we announced

a patient access program called VEVYE Access for All.

The program is designed to increase patient access to VEVYE at an out-of-pocket

cost of $59 or below and, in many cases, reduce the need for prior authorizations, step edits, and other treatment obstacles facing dry

eye patients and their prescribers.

Project Beagle

During the first quarter of

2025 we initiated a 360-degree review of opportunities to offer ImprimisRx customers a Harrow-owned FDA-approved product alternative to

a compounded formulation.

We call this initiative Project Beagle.

In that vein, we began implementing a continuity of care program to

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

and we expect to discontinue compounding Klarity-C by June 30, 2025.

We are also discontinuing another related compounded formulation

called Klarity PF.

Klarity PF is primarily purchased by a concentrated group of customers who we anticipate will accept our FRESHKOTE

product as an alternative.

As we work through Project Beagle, we will continue to review opportunities to reduce the size of our compounded

formulary, improve and simplify our compounding capabilities, and transition other ImprimisRx customers from compounded formulations to

Harrow’s FDA-approved products.

Results of Operations

The following period-to-period

comparisons of our financial results for the three months ended March 31, 2025 and 2024 are not necessarily indicative of results for

any future period.

Our revenues include amounts

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

commissions from third parties and revenues received from royalty payments owed to us pursuant to out-license arrangements.

The following presents our

revenues for the three months ended March 31, 2025 and 2024:

For the Three Months Ended

For the Nine Months Ended

September 30,

Other branded products (Anterior Segment)

Other revenues, net

(10,2109,000 )

Other branded products

Other revenues

Branded revenue, net

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Total revenues, net

$ 132,783,000

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

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

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

following presents our Branded cost of sales:

For the Three Months Ended

For the Nine Months Ended

September 30,

increase in revenues between periods was related to an increase in sales of our branded ophthalmology products.

During the three months

ended March 31, 2025, revenues from branded products totaled $27,780,000, compared to $13,869,000 during the same period in the prior

Cost of Sales, Gross Profit and Gross Margin

Our cost of sales includes

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

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

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

Three Months Ended March 31,

Cost of sales

increase in our Branded cost of sales was largely attributable to expenses associated with unit volumes sold.

following presents our ImprimisRx cost of sales:

For the Three Months Ended

For the Nine Months Ended

September 30,

The increase in cost of

sales was primarily attributable to an increase in units sold during the three months ended March 31, 2025 compared to the prior

year period and an increase in our fixed expenses.

The decrease in Branded gross margin between the three months ended March 31,

2025 and 2024 was primarily attributable to an increase of our fixed expenses, in particular, acquired product NDA amortizations

related to the launch of TRIESENCE and a related contingent milestone payment that was capitalized in the fourth quarter of

Three Months Ended March 31,

Cost of sales

increase in our ImprimisRx cost of sales was largely attributable to expenses associated with unit volumes sold and increased direct

and indirect costs associated with production of our products.

Profit and Margin

For the Three Months Ended

For the Nine Months Ended

September 30,

increase in Branded gross margin between the three and nine months ended September 30, 2024 and 2023 was primarily attributable to an

increase in sales reducing the impact of our fixed expenses, such as license amortization.

For the Three Months Ended

For the Nine Months Ended

September 30,

General and Administrative Expenses

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

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

our marketing activities and sales of our FDA approved, proprietary compounded formulations and other non-proprietary pharmacy products

and formulations.

$ (1,135,000 )

The increase in ImprimisRx

costs of sales between the three months ended March 31, 2025 and 2024 was primarily attributable to an increase in units sold during the

three months ended March 31, 2025 compared to the same period in 2024.

However, due to product mix during the three months ended March

31, 2025 that included more sales of lower gross margin products and sales discounts, ImprimisRx gross

margin decreased during the 2025 period compared to the prior year period.

Selling, General and Administrative Expenses

Our selling, general and administrative

expenses include personnel costs, including wages and stock-based compensation, corporate facility expenses, and investor relations, consulting,

insurance, filing, legal and accounting fees and expenses as well as costs associated with our marketing activities and sales of our proprietary

compounded formulations and other non-proprietary pharmacy products and formulations.

The following presents our

selling, general and administrative expenses for the three months ended March 31, 2025 and 2024:

For the Three Months Ended

For the Nine Months Ended

September 30,

Selling, general and administrative

increase in selling, general and administrative expenses between periods was primarily attributable to an increase in expenses including

regulatory enhancements, costs to support the transition of recent product acquisitions, and an increase in expenses related to the addition

of new employees in sales, marketing and other departments to support current and expected growth, including the commercial launch of

VEVYE in December 2023.

Stock-based compensation expense increased by $1,227,000 during the nine months ended September 30, 2024 compared

to the prior year period.

and Development Expenses

The increase in selling, general

and administrative expenses between periods was primarily attributable to an increase in certain seasonal expenses, such

as increased costs associated with our annual audit and a special project that totaled $3,629,000 during the three months ended March

In addition, the increase in SG&A expenses between periods was attributable to the addition of new employees in sales, marketing

and other departments to support current and expected growth, which when combined contributed to a $11,700,000 increase in SG&A between

Research and Development Expenses

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

expenses related to the development of intellectual property, investigator-initiated research and evaluations, formulation development,

and other costs related to the clinical development of our assets.

the Three Months Ended

the Nine Months Ended

and development

increase in R&D expenses between periods was primarily attributable to activity related to our expanded branded product portfolio,

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

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

following presents our research and development expenses for the three months ended March 31, 2025 and 2024:

For the Three Months Ended

Research and development

The increase in R&D expenses

between periods was primarily attributable to increased activity related to our expanded branded product portfolio, product acquisitions,

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

expense, net was $5,525,000 and $16,411,000 for the three and nine months ended September 30, 2024, respectively, compared to $5,749,000

and $16,200,000 for the same periods in 2023, respectively.

The decrease during the three months ended September 30, 2024 compared to

the same period in 2023 was primarily the result of increased interest income earned.

The increase during the nine months ended September

30, 2024 compared to the same period in 2023 was primarily the result from the increase in the outstanding principal amount of our debt

(Loss) Gain from Eton

the nine months ended September 30, 2024, we recorded a loss of $3,171,000 related to the change in fair market value of Eton’s

common stock at the time of its sale, including trading expenses and commissions of approximately $436,000, compared to a gain of $1,348,000

and gain of $2,676,000 during the three and nine months ended September 30, 2023, respectively.

on Extinguishment of Debt

the nine months ended September 30, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the early payoff of

the three and nine months ended September 30, 2024, we recorded other income of $4,000 and $76,000, respectively, related to a sublease

of lab and office space in Nashville.

During the three and nine months ended September 30, 2023, we recorded other expense, net of $195,000

and $344,000, respectively, related primarily to transition services and write-off of inventories associated with the divestment of our

non-ophthalmology business.

and Capital Resources

cash on hand at September 30, 2024 was $72,601,000, compared to $74,085,000 at December 31, 2023.

October 2024, we made a one-time payment of $37,000,000 upon the achievement of a milestone associated with one of our asset

purchase agreements which was funded, in part, from our availability under the delayed draw commitments of our Oaktree debt

of the date of this Quarterly Report, we believe that our cash and cash equivalents will be sufficient to sustain our planned level of

Interest Expense, Net

Interest expense, net was

$6,548,000 for the three months ended March 31, 2025, compared to $5,415,000 for the same period in 2024.

The increase during the period

ended March 31, 2025 compared to the same period in 2024 was primarily the result of an increase in the outstanding principal amount

of our debt obligations.

Investment Loss from Eton

During the three months

ended March 31, 2024, we recorded a loss of $(1,248,000), related to the change in fair market value of Eton Pharmaceuticals, Inc’s common stock.

In April 2024, we sold all of our shares of Eton.

Liquidity and Capital Resources

Our cash on hand at March

31, 2025 was $66,726,000, compared to $47,247,000 at December 31, 2024.

As of the date of this Quarterly

Report, we believe that cash and cash equivalents of $66,726,000 at March 31, 2025 will be sufficient to sustain our planned level of

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

In addition, we may consider the sale of certain assets including,

but not limited to, part of, or all of, our investments in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals,

(“Melt”) and any of our consolidated subsidiaries.

However, we may pursue acquisitions of revenue generating products

or drug candidates or other strategic transactions that involve large expenditures or we may experience growth more rapidly or on a larger

scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and could require

us to seek additional financing to support our operations.

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

includes developing and commercializing drug candidates, compounded formulations and technologies, integrating and developing our operations,

pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional drug products,

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

our operations.

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

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

following provides detailed information about our net cash flows:

For the Nine Months Ended September 30,

Net cash (used in) provided by:

Management expects to refinance the Oaktree Loan (as defined in Note

10 of our unaudited condensed consolidated financial statements included in this Quarterly Report) during 2025 and the 2026 Notes (as

defined in Note 10 of our unaudited condensed consolidated financial statements included in this Quarterly Report) at the same time or

soon thereafter.

Management believes it is probable that we will be able to refinance the Oaktree Loan and 2026 Notes;

however, there

can be no assurance that we will obtain the refinancing on terms acceptable to us, or at all - see the subheading Sources of Capital below

for additional discussion regarding the Oaktree Loan, 2026 Notes and refinancing plans.

In addition, we may consider the sale of certain

assets including, but not limited to, part of, or all of, our investment in Melt Pharmaceuticals, Inc.

(“Melt”) and any of

our consolidated subsidiaries.

However, we may pursue acquisitions of products, drug candidates or other strategic transactions that involve

large expenditures or we may experience growth more rapidly or on a larger scale than we expect, any of which could result in the depletion

of capital resources more rapidly than anticipated and could require us to seek additional financing to support our operations.

We expect to use our current

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

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

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

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

We may also use our resources to

conduct clinical trials or other studies in support of our formulations or any drug candidate for which we pursue FDA approval, to pursue

additional development programs or to explore other development opportunities.

Net Cash Flow

The following provides detailed information about

our net cash flows for the three months ended March 31, 2025 and 2024:

For the Three Months Ended

Net cash provided by (used in):

Operating activities

$ (4,628,000 )

$ (4,856,000 )

Investing activities

(152,350,000 )

Financing activities

Net change in cash and cash equivalents

(30,660,000 )

Cash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period

cash used in operating activities during the nine months ended September 30, 2024 was $(4,423,000) compared to $(4,856,000) during the

same period in the prior year.

The decrease in net cash used in operating activities between the periods was mainly attributed

to changes in our working capital balances including accounts receivable, accounts payable, prepaid expenses and inventories.

cash provided by (used in) investing activities during the nine months ended September 30, 2024 was $4,396,000 compared to $(152,350,000)

during the same period in the prior year.

Cash used in investing activities in 2023 was primarily related to the acquisition of branded

products completed in 2023.

Cash provided by investing activities in 2024 was primarily related to the sale of our investment in Eton.

cash (used in) provided by financing activities during the nine months ended September 30, 2024 and 2023 was $(1,457,000) and $126,546,000,

respectively.

Cash used in financing activities during the nine months ended September 30, 2024 was primarily related to payment of payroll

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

Cash provided by financing activities during the nine months

ended September 30, 2023 was primarily related to proceeds received from the sale of notes and common stock in our 2023 capital markets

transactions and entering into loan arrangements, offset by repayment of the B.

Riley senior secured note and payment of payroll taxes

upon vesting and exercise of equity instruments in exchange for shares withheld from employees.

principal sources of cash have consisted of sales of our common stock, debt issuances, sales of our investments, and on an annual basis

for the year ended December 31, 2023) cash generated from operating activities.

We may also sell some or all of our ownership interests

in Surface, Melt or our other subsidiaries.

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

our business plan and fund our proposed business operations.

We may receive additional proceeds from the exercise of stock options that

are currently outstanding.

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

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

If we issue equity

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

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

stockholders.

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

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

that are not favorable to us.

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

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

Obtaining commercial loans, assuming they would

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

and operating covenants.

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

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

We may also be required to

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

impact our financial results.

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

in the pharmaceuticals and pharmacy industries, or our operating history, including our past bankruptcy proceedings.

In addition, the

fact that we have a limited history of profitability could further impact the availability or cost to us of future financings.

sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are

acceptable to us.

If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially

valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan,

which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back

or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing

and other activities, or we may be forced to discontinue our operations entirely.

Issued and Adopted Accounting Pronouncements

Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Quantitative and Qualitative Disclosures About Market Risk

Operating Activities

Net cash provided by (used

in) operating activities during the three months ended March 31, 2025 was $19,668,000 compared to $(4,628,000) during the same period

in the prior year.

The increase in net cash provided by operating activities between the periods was mainly attributed to a decrease of

$39,196,000 in accounts receivable due to collections during the three months ended March 31, 2025 compared to a decrease of $8,396,000

during the same period in 2024.

Investing Activities

Net cash used in investing

activities during the three months ended March 31, 2025 was $(212,000) compared to $(110,000) during the same period in the prior year.

Cash used in investing activities in 2025 and 2024 was primarily related to equipment and software purchases.

Financing Activities

Net cash provided by (used

in) financing activities during the three months ended March 31, 2025 and 2024 was $23,000 and $(809,000), respectively.

Cash provided

by financing activities during the three months ended March 31, 2025 was related to proceeds received from the exercise of stock options.

Cash used in financing activities during the three months ended March 31, 2024 was primarily related to payment of payroll taxes upon

vesting of RSUs in exchange for shares withheld from employees.

Sources of Capital

During the three months ended

March 31, 2025, our principal sources of cash came from proceeds from our operating activities.

We expect future cash needs to be provided

by operating activities, but our forecasts may not be accurate, and our plans may change.

We may also sell some of our assets, or all

of our ownership interests in Melt or our other subsidiaries.

In January 2026 the Oaktree

Loan matures and in April 2026, the 2026 Notes become due.

As of March 31, 2025, there was $107,500,000 principal amount outstanding under

the Oaktree Loan and $75,000,000 principal amount of the 2026 Notes were outstanding.

The maturity of these debt obligations could raise

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

We are currently in discussions with our current senior secured lender,

Oaktree, and other potential lenders about refinancing the Oaktree Loan 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 we will be able to refinance the Oaktree Loan and the 2026 Notes based on our collateral strength and expected cash flows from operations;

however, there can be no assurance that we will obtain the refinancing on terms acceptable to us, or at all.

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

There can be no assurance that

any sale could be completed on a timely basis or on terms acceptable to us.

If we are unable to successfully

refinance the Oaktree Loan and the 2026 Notes, we do not expect to have the ability to repay the Oaktree Loan and the 2026 Notes in full.

We may acquire new products,

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

our proposed business operations.

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

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

If we issue equity or convertible debt securities to raise

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

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

If we raise additional funds

through collaboration or licensing arrangements or sales of assets, we may be required to relinquish potentially valuable rights to our

product candidates or proprietary technologies or formulations, or grant licenses on terms that are not favorable to us.

If we raise funds

by incurring additional debt, we may be required to pay significant interest expenses and our leverage relative to our earnings or to

our equity capitalization may increase.

Obtaining commercial loans, assuming they would be available, would increase our liabilities and

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

Further, we may

incur substantial costs in pursuing future capital and/or financing transactions, including investment banking fees, legal fees, accounting

fees, printing and distribution expenses and other costs.

We may also be required to recognize non-cash expenses in connection with certain

securities we may issue, such as convertible notes and warrants, which would adversely impact our financial results.

We may be unable to obtain

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

and pharmacy industries, or our operating history.

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

impact the availability or cost to us of future financings.

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

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

If we are unable to raise funds to satisfy our capital

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

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

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

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

Recently Issued and Adopted Accounting Pronouncements

See Note 2 to our unaudited

condensed consolidated financial statements included in this Quarterly Report.

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 2. Management’s Discussion and Analysis