HARROW, INC. (HROW) FY 2021 MD&A

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

The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and the related notes contained in this Annual Report on Form 10-K (this “Annual Report”). Our consolidated
financial statements have been prepared and, unless otherwise stated, the information derived therefrom as presented in this discussion
and analysis is presented, in accordance with accounting principles generally accepted in the United States (GAAP). In addition to historical
information, the following discussion contains forward-looking statements based upon our current views, expectations and assumptions
that are subject to risks and uncertainties. Actual results may differ substantially from those expressed or implied by any forward-looking
statements due to a number of factors, including, among others, the risks described in the “Risk Factors” section and elsewhere
in this Annual Report.

As
used in this discussion and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow”
“we,” “us” and “our” refer to Harrow Health, Inc. and its consolidated subsidiaries, consisting of
Imprimis Rx NJ, LLC, Imprimis NJOF, LLC, ImprimisRx, LLC, Radley Pharmaceuticals, Inc., Stowe Pharmaceuticals, Inc. and Mayfield Pharmaceuticals,
Inc.

Overview

We
are an ophthalmic-focused healthcare company. Our business specializes in the development, production and sale of innovative medications
that offer unique competitive advantages and serve unmet needs in the marketplace through our subsidiaries and deconsolidated companies.
We own and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical businesses, and Visionology, Inc.
(“Visionology”), a direct-to-consumer eyecare subsidiary focused on chronic vision care. In addition, we also have non-controlling
equity positions in Surface Ophthalmics, Inc. (“Surface”) and Melt Pharmaceuticals, Inc. (“Melt”), both companies
that began as subsidiaries of Harrow and were subsequently deconsolidated. We also own royalty rights in various drug candidates being
developed by Surface and Melt.

ImprimisRx

ImprimisRx
is our ophthalmology-focused prescription pharmaceutical business. From its inception in 2014, ImprimisRx, which consists of integrated
research and development, production, dispensing/distribution, sales, marketing, and customer serve capabilities, has offered physician
customers and their patients access to critical medicines to meet their clinical needs. Initially, ImprimisRx focused exclusively on
compounded medications to serve needs unmet by commercially available drugs. We make our formulations available at prices that are, in
most cases, lower than non-customized commercial drugs, ImprimisRx’s customer base has grown to include more than 10,000 U.S. eyecare
dedicated prescribers and institutions. Our current ophthalmology formulary includes over twenty compounded formulations, many of which
are patented or patent-pending, and are customizable for the specific needs of a patient. Some of our compounded medications are various
combinations of drugs formulated into one bottle and numerous preservative free formulations. Depending on the formulation, the regulations
of a specific state and ultimately the needs of the patient, ImprimisRx products may be dispensed as patient-specific medications from
our 503A pharmacy, or for in-office use, made according to current good manufacturing practices (or “cGMPs”) or other FDA-guidance
documents, in our FDA-registered New Jersey outsourcing facility (“NJOF”).

Over
the past two years, in order to more fully serve the needs of our growing customer base, we have invested in broadening ImprimisRx’s
product portfolio to include FDA-approved products. Our investments in this regard have led to commercial partnerships to sell DEXYCU®
and Avenova, the acquisition of two later stage drug candidates, and the recent acquisition of U.S. rights to four FDA-approved ophthalmic
products. These transactions, and those we are continuing to pursue, are focused in eyecare pharmaceuticals. We believe that our continued
investments in these and other products will result in our ability to provide more physician prescribers and their patients with access
to a complete portfolio of affordable eyecare pharmaceuticals to address their clinical needs.

DEXYCU®

ImprimisRx
entered into a Commercial Alliance Agreement (the “Dexycu Agreement”) with Eyepoint Pharmaceuticals, Inc. (“Eyepoint”),
pursuant to which Eyepoint granted ImprimisRx the right to promote DEXYCU® (dexamethasone intraocular suspension) 9% for the treatment
of post-operative inflammation following ocular surgery in the United States. Pursuant to the Dexycu Agreement, Eyepoint pays ImprimisRx
a fee that is calculated based on the quarterly sales of DEXYCU in the U.S.

IOPIDINE®,
MAXITROL® EYE DROPS, MOXEZA®

In
December 2021, we acquired U.S. commercial rights to four FDA-approved ophthalmic medicines: IOPIDINE 1% and 0.5% (apraclonidine hydrochloride);
MAXITROL (neomycin/polymyxin B/dexamethasone) eye drops; and MOXEZA (moxifloxacin hydrochloride). We believe by expanding our product
portfolio to include branded FDA-approved products, we will be uniquely positioned to leverage our ImprimisRx platform to introduce unique
lifecycle management strategies that could grow sales and address needs of our customers that we are unable to meet with our other compounded
product offerings.

At
the time of closing, we agreed to a transitional period with the seller, which is expect to last approximately six months following the
closing of the transaction. During the transition period, the seller will continue to sell the products and transfer the net profit to
us. Following the transition period, we expect to have the products manufactured by third parties and commercialize the products for
the U.S. market.

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AMP-100

In
July 2021, we acquired the exclusive marketing and supply rights to AMP-100 in the U.S. and Canada from Sintetica S.A. (“Sintetica”).
AMP-100 is a patented, ophthalmic topical anesthetic drug candidate. If FDA-approved, the active ingredient used in AMP-100 will be the
first approved use of this active ingredient in the U.S. ophthalmic market. A new drug application (“NDA”) for AMP-100 was
submitted by Sintetica to the FDA in the fourth quarter of 2021 and the FDA has assigned the application standard review and a Prescription
Drug User Fee Act (PDUFA) target action date of October 16, 2022.

MAQ-100

In
August 2021, we acquired exclusive the marketing rights to MAQ-100 in the U.S. and Canada from Wakamoto Pharmaceutical Co., Ltd. (“Wakamoto”).
MAQ-100 is a preservative-free triamcinolone acetonide ophthalmic injection drug candidate. MAQ-100 is marketed and sold by Wakamoto
in Japan as MaQaid®. Following Japan’s Ministry of Health Labor and Welfare (“MHLW”) approval, MaQaid was launched
in Japan in 2010, indicated as an intravitreal injection for visualization for vitrectomy. Since its initial MHLW approval, the indication
for MaQaid was expanded to include (a) treatments for alleviation of diabetic macular edema, (b) macular edema associated with retinal
vein occlusion (or RVO), and (c) non-infectious uveitis. We intend to leverage the clinical data used for Japanese market approval of
MaQaid to support a clinical program and U.S. market NDA submission of MAQ-100 for visualization during vitrectomy. We intend to request
a meeting with FDA during the first half of 2022 to discuss our planned clinical program for MAQ-100.

We
expect to acquire and/or develop additional FDA-approved/approvable ophthalmic products and product candidates that will allow us to
leverage the commercial infrastructure of ImprimisRx to promote, sell, and ultimately bring these products to market.

Visionology

Visionology,
a direct-to-consumer online eye health platform, leverages our experience in the ophthalmic pharmaceutical business as well as our relationships
with eyecare professionals across the United States. We recently launched a proof-of-concept model for Visionology within certain U.S.
markets, and if successful, will expand the launch on a nationwide basis in 2022.

Pharmaceutical
Compounding Businesses

Pharmaceutical
Compounding

Pharmaceutical
compounding is the science of combining different active pharmaceutical ingredients (APIs), all of which are approved by the FDA (either
as a finished form product or as a bulk drug ingredient), and excipients to create specialized pharmaceutical preparations. Physicians
and healthcare institutions use compounded drugs when commercially available drugs do not optimally treat a patient’s needs. In
many cases, compounded drugs, such as ours, have wide market utility and may be clinically appropriate for large patient populations.
Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms, such as topical creams
or gels, suspensions, or solutions with more tolerable drug delivery vehicles.

Almost
all of our sales revenue is derived from making, selling and dispensing our compounded prescription drug formulations as cash pay transactions
between us and our end-user customer. As such, the majority of our commercial transactions do not involve distributors, wholesalers,
insurance companies, pharmacy benefit managers or other middle parties. By not being reliant on insurance company formulary inclusion
and pharmacy benefit manager payment clawbacks, we are able to simplify the prescription transaction process. We believe the outcome
of our business model is a simple transaction, involving a patient-in-need, a physician’s diagnosis, a fair price and great service
for a quality pharmaceutical product. We sell our products through a network of employees and independent contractors, and we dispense
our formulations in all 50 states, Puerto Rico and in select markets outside the United States.

Our
Compounding Facilities

Pharmaceutical
compounding businesses are governed by Sections 503A and 503B of the Federal Food Drug and Cosmetic Act (the “FDCA”). Section
503A of the FDCA provides that a pharmacy is only permitted to compound a drug for an individually identified patient based on a prescription
for the patient and is only permitted to distribute the drug interstate if the pharmacy is licensed to do so in the states where it is
compounded and where the medication is received.

Section
503B of the FDCA provides that a pharmacy engaged in preparing sterile compounded drug formulations may voluntarily elect to register
as an “outsourcing facility.” Outsourcing facilities are permitted to compound large quantities of drugs without a prescription
and distribute them out of state with certain limitations, such as the formulation appearing on the FDA’s drug shortage list or
the bulk drug substances contained in the formulations appearing on the FDA’s “clinical need” list. Entities voluntarily
registering with FDA as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies (operating
under Section 503A of the FDCA), including adhering to standards such as current good manufacturing practices (cGMP) or other FDA guidance
documents and being subject to regular FDA inspection.

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We
operate two compounding facilities located in Ledgewood, New Jersey. Our New Jersey operations are comprised of two separate entities
and facilities, one of which is registered with the FDA as an outsourcing facility (“NJOF”) under Section 503B of the FDCA.
The other New Jersey facility (“RxNJ”) is a licensed pharmacy operating under Section 503A of the FDCA. All products that
we sell, produce and dispense are made in the United States.

We
believe that, with our current compounding pharmacy facilities and licenses and FDA registration of NJOF, we have the infrastructure
to scale our business appropriately under the current regulatory landscape and meet the potential growth in demand we are targeting.
We plan to invest in one or both of our facilities to further their capacity and efficiencies. Also, we may seek to access greater pharmacy
and production related redundancy and markets through acquisitions, partnerships or other strategic transactions.

Carved-Out
Businesses (De-Consolidated Businesses)

We
have ownership interests in Surface, Melt, and Eton Pharmaceuticals, Inc. (“Eton”) and hold royalty interests in some of
Surface’s and Melt’s drug candidates. These companies are pursuing market approval for their drug candidates under the FDCA,
including in some instances under the abbreviated pathway described in Section 505(b)(2), which permits the submission of a new drug
application (“NDA”) where at least some of the information required for approval comes from studies not conducted by or for
the applicant and for which the applicant has not obtained a right of reference.

In
2018 and 2019, we formed and created subsidiaries named Radley Pharmaceuticals, Inc. (“Radley”), Mayfield Pharmaceuticals,
Inc. (“Mayfield”), and Stowe Pharmaceuticals, Inc. (“Stowe”). In 2020, we halted nearly all operating activities
related to these subsidiaries to invest resources in other areas, and we may not restart any or all activities related to these businesses.
In addition, we terminated license and acquisition agreements for Mayfield’s MAY-66 and MAY-44 drug candidates, and Stowe’s
STE-006 drug candidate.

Noncontrolling
Equity Interests

Surface
Ophthalmics, Inc.

Surface
is a clinical-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface
diseases.

In
January 2021, Surface announced positive top-line results from a Phase 2 trial of its drug candidate SURF-201, a 0.2% betamethasone,
preservative-free ophthalmic solution in the Klarity delivery vehicle for the treatment of post cataract surgery pain and inflammation.
According to the Surface results, SURF-201 was dosed twice daily, met its primary endpoints of absence of inflammation at both Day 8
and Day 15 and was found to be safe and well-tolerated by the patient group. In addition, a secondary endpoint showed almost 90% of patients
given SURF-201 were pain free at Day 15. Also in January 2021, Surface announced the first patient dosed in a head-to-head Phase 2 trial
for its drug candidate SURF-100 (mycophenolate sodium and betamethasone in Klarity vehicle) for the treatment of chronic dry eye disease.
In February 2021, Surface announced the first patient dosed in a Phase 2 trial for its drug candidate SURF-200 (betamethasone in Klarity
vehicle) for the treatment of episodic dry eye flares.

In
2018, Surface closed an offering of its Series A Preferred Stock. At that time, we lost our controlling interest and deconsolidated Surface
from our consolidated financial statements. During May, June and July of 2021, Surface closed an offering of its preferred stock at a
purchase price of $4.50 per share resulting in gross proceeds to Surface of approximately $25,000,000 (the “Surface Series B Offering”).
We own 3,500,000 shares of Surface common stock, which was approximately 20% of the equity and voting interests as of December 31, 2021.
Harrow owns mid-single digit royalty rights on net sales of SURF-100, SURF-200 and SURF-201.

Melt
Pharmaceuticals, Inc.

Melt
is a clinical-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous, sedation
and anesthesia therapeutics for human medical procedures in hospital, outpatient, and in-office settings. Melt intends to seek regulatory
approval for its proprietary technologies, where possible. In December 2018, we entered into an Asset Purchase Agreement with Melt (the
“Melt Asset Purchase Agreement”), pursuant to which Harrow assigned to Melt the underlying intellectual property for Melt’s
current pipeline, including its lead drug candidate MELT-300. The core intellectual property Melt owns is a patented series of combination
non-opioid sedation drug formulations that we estimate to have multitudinous applications.

MELT-300
is a novel, sublingually delivered, non-IV, opioid-free drug candidate being developed for procedural sedation. Melt filed an investigational
new drug application (“IND”) with the FDA in June 2020 and began its clinical program for MELT-300. In February 2021, Melt
announced data from, and the successful completion of, its Phase 1 study. Melt recently began enrolling patients in its Phase 2 study
for MELT-300.

In
January 2019, Melt closed an offering of its Series A Preferred Stock. At that time, we lost our controlling interest and deconsolidated
Melt from our consolidated financial statements. We own 3,500,000 shares of Melt common stock, which was approximately 46% of the equity
and voting interests issued and outstanding as of December 31, 2021. In September 2021, we provided Melt with a senior secured loan in
the amount of $13,500,000, which is intended to fund the Phase 2 program of MELT-300. In connection with the loan we provided Melt, we
also were provided the right, but not the obligation, to match any offer received by Melt associated with the commercial rights to any
of its drug candidates for a period of five years. Melt is required to make mid-single digit royalty payments to the Company on net sales
of MELT-300, while any patent rights remain outstanding, subject to other conditions. Melt can require the Company to cease compounding
like products at the time of FDA approval of MELT-300. If approved, we do not expect a cessation of compounding like products to have
a material impact on our operations and financial performance.

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Eton
Pharmaceuticals, Inc.

Eton
is a commercial-stage pharmaceutical company focused on developing and commercializing innovative drug products. Its pipeline includes
several products and drug candidates in various stages of development across a variety of dosage forms. In May 2017, we gave up our controlling
interest in Eton. We own 1,982,000 shares of Eton common stock, which is less than 10% of the equity and voting interests issued and
outstanding of Eton as of December 31, 2021.

Factors
Affecting Our Performance

We
believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations
and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, potential regulatory-related restrictions,
optimize pricing and obtain reimbursement options for our proprietary compounded formulations, and continue to pursue development and
commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as
compounded formulations. 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.

Reimbursement
Options

Dexycu
is covered under Medicare Part B, and we are developing drug candidates that we believe will be covered under Medicare Part B. New drugs
approved by the FDA that are used in surgeries performed in a hospital outpatient departments or ambulatory surgical centers may receive
a transitional pass-through reimbursement under Medicare, provided they meet certain criteria, including a “not insignificant”
cost criterion. Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure)
under Medicare Part B, which consists of Medicare reimbursement for a drug based on a defined formula for calculating the minimum fee
that a manufacturer may charge for the drug. Under current regulations of the Centers for Medicare & Medicaid Services (“CMS”),
pass-through status applies for a period of three years, measured from the date Medicare makes its first pass-through payment for the
product, following which the product would be incorporated into the cataract bundled payment system, which could significantly reduce
the pricing for that product. Following expiration of pass-through status, under current CMS policy, non-opioid pain management surgical
drugs when used on Medicare Part B patients in the ASC setting can qualify for ongoing separate payment. CMS’ current non-opioid
separate payment policy, like other CMS policies, can be changed by CMS through its annual rulemaking and comment process. We believe
that CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019.

We
are working with outside consultants to potentially gain an extension to the transitional payment system, or to separate the drug payment
from the bundled cataract surgery payment after the three-year transitional payment ends and continue to be reimbursed separately for
a longer period of time, potentially through patent life. Unless extended, Dexycu transitional pass-through reimbursement status will
expire on December 31, 2022, which will have an adverse impact on our commission revenues from this product.

Our
proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis. However, we expect that MOXEZA,
MAXITROL and IOPIDINE are, and we expect that other drug candidates we are developing, if approved, will be eligible for reimbursement
by third-party payors. We may devote time and other resources to seek reimbursement and patient pay opportunities for these and other
drug products and candidates. However, we may be unsuccessful in achieving these goals, as many third-party payors have imposed significant
challenges for products to be eligible for reimbursement in recent years. Moreover, third-party payors, including Medicare, are increasingly
attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing, in some cases,
to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Further,
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “Health Care Reform Law”), may have a considerable impact on the existing U.S. system for the delivery
and financing of health care and could conceivably have a material
adverse effect on our business. As a result, reimbursement from Medicare, Medicaid and other third-party
payors may never be available for any of our products or, if available, may not be sufficient to allow us to sell the products on a competitive
basis and at desirable price points. We are communicating with government and third-party payors in order to make our drug products and
candidates available to more patients and at optimized pricing levels. However, if government and other third-party payors do not provide
adequate coverage and reimbursement levels for our drug products and candidates, the market acceptance and opportunity for them may be
limited.

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COVID-19
Pandemic

A
novel strain of coronavirus was first identified in Wuhan, China in December 2019. The disease caused by it, COVID-19, was declared a
global pandemic by the World Health Organization in March 2020. On March 18, 2020, CMS released guidance for U.S. healthcare providers
to limit all elective medical procedures in order to conserve personal protective equipment and limit exposure to COVID-19 during the
pendency of the pandemic. In addition to limiting elective medical procedures, many hospitals and other healthcare providers have strictly
limited access to their facilities during the pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global
supply chains and healthcare delivery, led to social distancing recommendation, and created significant volatility in financial markets.
In May 2020 and the following months, U.S. states and geographies began easing restrictions associated with the COVID-19 pandemic including
those restrictions related to elective procedures. We have since seen sales of our products return to near historical norms and trends
as restrictions associated with elective procedures and the COVID-19 pandemic have continued to ease.

However,
given the unprecedented and dynamic nature of the COVID-19 pandemic virus, including any mutations/variants, we may not be able to reasonably
estimate the impacts it may have on our financial condition, results of operations or cash flows in the future, especially if there are
new restrictions in elective procedures in the future which would have an adverse impact, which may be material, on our future revenues,
profitability and cash flows.

Recent
Developments

The
following describes certain developments in 2021 to date that are important to understand our financial condition and results of operations.
See the notes to our condensed consolidated financial statements included in this Annual Report for additional information about each
of these developments.

Acquisition
of U.S. Rights to MAXITROL Eye Drops, IOPIDINE and MOXEZA

On
December 17, 2021 (the “Closing Date”), we entered into an Asset Purchase Agreement (the “NVS Agreement”) with
Novartis Technology, LLC and Novartis Ophthalmics AG (together, “ NVS”), pursuant to which the Company purchased from NVS
the exclusive commercial rights to assets associated with ophthalmic products Moxeza® (moxifloxacin) 0.5%, Iopidine® (apraclonidine
hydrochloride) 1% and 0.5%, and Maxitrol® (Neomycin/Polymyxin B/Dexamethasone) eyedrops suspension (collectively the “NVS Products”)
in the U.S.. On the Closing Date, we made a one-time
payment of $14,050,000 to NVS for the U.S. rights to the NVS
Products and their related intellectual property.

Pursuant
to the NVS Agreement and various ancillary agreements, immediately following the Closing
Date and subject to certain conditions, for a period of up to six months, and prior to the transfer of the NVS
Products NDAs to the Company, Novartis will continue to sell the NVS Products on
our behalf and transfer the net profit from the sale of the NVS Products to us. NVS
has agreed to supply certain NVS Products to us for a period of time after the NDAs
are transferred to the Company and to assist with technology transfer of the NVS Products
manufacturing to other third-party manufacturers, if needed.

PPP
Loan

In
April 2020, we entered into an unsecured promissory note and related Business Loan Agreement with Renasant Bank, as lender, for a loan
(the “PPP Loan”) in the principal amount of $1,967,000 and received cash proceeds of the same amount, pursuant to the Paycheck
Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
which was enacted March 27, 2020. The PPP is administered by the U.S. Small Business Administration. On March 30, 2021, the Company received
a notice of forgiveness of the full balance of the PPP Loan, including all accrued interest, in accordance with the terms and conditions
of the CARES Act and accordingly recognized a gain on forgiveness of debt of $1,967,000.

Eton
Stock Sale

In
April 2021, we closed an underwritten public offering of 1,518,000 shares of our Eton common stock at a public offering price of $7.00
per share (the “Eton Stock Sale”). The gross proceeds to us from the Eton Stock Sale were $10,626,000 before deducting underwriting
discounts and commissions and other offering expenses payable by the Company. Following such sale, we own 1,982,000 shares of Eton common
stock, which represented less than 10% of the equity interests issued and outstanding of Eton as of December 31, 2021.

As
part of the Eton Stock Sale, we also agreed, for a period of 180 days, not to conduct any further sales of shares of its common stock
of Eton or otherwise dispose of, directly or indirectly, any common stock of Eton (or any securities convertible into, or exercisable
or exchangeable for, the common stock of Eton).

8.625%
Senior Notes Due 2026

During
April, May and June 2021, we closed offerings totaling $75,000,000 aggregate principal amount of 8.625% senior notes due 2026 (the “Notes”).
The Notes are senior unsecured obligations of the Company
and rank equally in right of payment with all of our other existing and future senior unsecured and unsubordinated indebtedness. The
Notes are effectively subordinated in right of payment to all of our existing and future secured indebtedness and structurally subordinated
to all existing and future indebtedness of the Company’s subsidiaries, including trade payables. The Notes bear interest at the
rate of 8.625% per annum. Interest on the Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each
year, and commenced on July 31, 2021. The Notes will mature on April 30, 2026.

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Prior
to February 1, 2026, we may, at our option, redeem the 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 Notes to be redeemed, plus a make-whole amount, if any, plus accrued and unpaid interest
to, but excluding, the date of redemption. We may redeem the Notes for cash in whole or in part at any time at our option on or after
February 1, 2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but
excluding, the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Notes.

Series
B Cumulative Preferred Stock - Redeemed

On
May 5, 2021, we sold 440,000 shares of Series B Cumulative Preferred Stock (the “Series B Preferred Stock”) for net proceeds
of $10,655,000. On June 17, 2021, we redeemed all of the outstanding shares of the Series B Preferred Stock. The redemption price
for the 440,000 shares of the Series B Preferred Stock outstanding was equal to $25.00 per share, plus accrued and unpaid dividends,
which in aggregate totaled $11,127,000.

Sintetica
Agreement

In
July 2021, we entered into a License and Supply Agreement (the “Sintetica Agreement”) with Sintetica S.A. (“Sintetica”),
pursuant to which Sintetica granted the Company the exclusive license and marketing rights to its patented ophthalmic drug candidate
(“AMP-100”) in the U.S. and Canada.

Pursuant
to the Sintetica Agreement, the Company will pay Sintetica a per unit transfer price to supply AMP-100, along with a per unit royalty
for units sold. The Company is required to pay Sintetica up to $18,000,000 in one-time milestone payments, $5,000,000 of which was paid
shortly after the signing of the Sintetica Agreement, $3,117,000 upon the submission of the AMP-100 NDA and the balance of payments due
upon achievement of certain regulatory and commercial milestones. Under the terms of the Sintetica Agreement, Sintetica will be responsible
for regulatory filings for AMP-100 in the U.S.

Subject
to certain limitations, the term of the Sintetica Agreement is ten years and allows for a ten-year extension if certain sales thresholds
are met.

Wakamoto
Agreement

In
August 2021, we entered into a License Agreement and a Basic Sale and Purchase Agreement (together, the “Wakamoto Agreements”)
with Wakamoto Pharmaceutical Co., Ltd. (“Wakamoto”), pursuant to which Wakamoto granted the Company the exclusive license
and marketing rights to its ophthalmic drug candidate (“MAQ-100”) in the U.S. and Canada.

Pursuant
to the Wakamoto Agreements, Wakamoto will supply MAQ-100 to us, and we will pay Wakamoto a per unit transfer price to supply MAQ-100.
In addition, we are required to pay Wakamoto various one-time milestone payments totaling up to $2,000,000 upon the achievement of certain
regulatory milestones and up to $6,200,000 upon the achievement of certain commercial milestones. Under the terms of the Wakamoto Agreements,
we are responsible for regulatory filings and fees for MAQ-100 in the U.S. and Canada.

Subject
to certain limitations, the term of the Wakamoto Agreements is for five years from the date of the FDA’s market approval of MAQ-100
and allows for a five-year extension if certain unit sales thresholds are met.

Melt
Loan

In
September 2021, we entered into a loan and security agreement in the principal amount of $13,500,000 (the “Melt Loan Agreement”),
as lender, with Melt, as borrower. Amounts borrowed under the Melt Loan Agreement bear interest at twelve and one-half percent (12.50%)
per annum, which can be paid in kind interest at the option of Melt until the maturity date. The Melt Loan Agreement permits Melt to
pay interest only on the principal amount loaned thereunder through the term and all amounts owed will be due and payable on September
1, 2022. Melt may elect to prepay all, but not less than all, of the amounts owed prior to the maturity date at any time without penalty.

Melt
has granted us a security interest in substantially all of its personal property, rights and assets, including intellectual property
rights, to secure the payment of all amounts owed under the Melt Loan Agreement. The Melt Loan Agreement contains customary representations,
warranties and covenants, including covenants by Melt limiting additional indebtedness, liens, mergers and acquisitions, dispositions,
investments, distributions, subordinated debt, and transactions with affiliates. The Melt Loan Agreement includes customary events of
default, and upon the occurrence of an event of default (subject to cure periods for certain events of default), all amounts owed by
Melt thereunder may be declared immediately due and payable by the us, and the interest rate on the loan may be increased by three percent
(3%) per annum.

In
connection with the Melt Loan Agreement, we entered into a Right of First Refusal Agreement with Melt providing us with the right, but
not the obligation, to match any offer received by Melt associated with the commercial rights to any of Melt’s drug candidates
for a period of five years following the effective date of the Melt Loan Agreement.

Results
of Operations

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

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Comparison
of Years Ended December 31, 2021 and 2020

Revenues

Our
revenues include amounts recorded from sales of proprietary and non-proprietary pharmaceutical compounded drug formulations and revenues
received from royalty and milestone payments owed to us pursuant to out-license arrangements.

The
following presents our revenues for the years ended December 31, 2021 and 2020:

The
increase in revenue between periods was largely attributable to an increase in sales volumes of our ophthalmology formulations, and products
and commissions attributable to sales of Dexycu®. During the year ended December 31, 2020, we believe sales of our ophthalmology
formulations were adversely impacted due to the onset and influence of the COVID-19 pandemic.

Cost
of Sales

Our
cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients,
personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation,
the write-off of obsolete inventory and other related expenses.

The
following presents our cost of sales for the years ended December 31, 2021 and 2020:

The
increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold during the year ended December
31, 2021 compared to 2020.

Gross
Profit and Margin

The
increase in gross profit and margin between periods is largely attributable to increased unit volumes sold, efficiencies in our production
process, including increased batch sizes, and improved utilization of capacities as a result of increased output during the year ended
December 31, 2021.

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 years ended December 31, 2021 and 2020:

44

The
increase in selling, general and administrative expenses between periods was primarily attributable to an increase in legal expenses
associated with a lawsuit that went to trial in 2021, an increase in stock-based compensation associated with performance stock units
that were granted during 2021, commissions and other expenses related to increased sales, and an increase in sales and marketing expenses
related to in-person conferences and new employee costs to support sales growth. In addition, during the year ended December 31, 2021,
the Company recorded $1,500,000 in expenses related to a litigation settlement.

Research
and Development Expenses

Our
research and development (“R&D”) expenses primarily include expenses related to acquired in-process R&D, the development
of acquired intellectual property, investigator-initiated research and evaluations and other costs related to the clinical development
of our assets and drug candidates.

The
following presents our R&D expenses for the years ended December 31, 2021 and 2020:

The
increase in R&D expenses between periods was primarily as a result of milestone payments of $8,117,000 to Sintetica along with increased
costs associated with the clinical program for MAQ-100.

Impairment
and Disposal of Long-Lived Assets

During
the year ended December 31, 2021, we recorded a loss of $249,000, of which, $99,000 was related to the impairment of patents and patent
applications and $150,000 was related to equipment that was no longer in service, compared to $363,000 during the year ended December
31, 2020.

Interest
Expense, net

Interest
expense, net was $5,436,000 during the year ended December 31, 2021 compared to $2,236,000 during the year ended December 31, 2020. The
increase was primarily due to interest expense recognition related to an increase in the principal balance of our loans.

Equity in Losses from Unconsolidated Entities

During
the years ended December 31, 2021 and 2020, we recorded a loss of $4,020,000 and $2,313,000, respectively, for our share of losses
based on our ownership of Melt. During the years ended December 31, 2021 and 2020, we recorded a loss of $1,314,000 and $2,433,000, respectively,
for our share of losses based on our ownership of Surface.

Investment
(Loss) Gain from Eton

We
recorded a loss of $10,126,000 related to our investment in Eton’s common stock for the year ended December 31, 2021,
including a realized loss of $1,406,000 from the sale of 1,518,000 shares of Eton’s common stock. We recorded a gain of $3,255,000
related to the change in fair market value of Eton’s common stock for the year ended December 31, 2020.

Gain
on Forgiveness of PPP Loan

During
the year ended December 31, 2021, we recorded gain on forgiveness of PPP loan of $1,967,000 related to the forgiveness of our PPP Loan.

Other
Expense, net

During the year ended December
31, 2021, we recorded other income, net of $197,000. This was primarily the result of income of $238,000 related to forgiveness
of old payables and expense of $41,000 related to loss on disposal of property, plant and equipment. During the year
ended December 31, 2020, we recorded other expense, net of $(73,000). This was primarily the result of income of $13,000 related to equipment
that was sold during the year ended December 31, 2020 and an expense of $105,000 related to the disposal of property, plant and equipment
related to the discontinued use of certain computer software and hardware.

Net
Loss

45

The
following table presents our net loss attributable to common stockholders for the years ended December 31, 2021 and 2020:

Liquidity
and Capital Resources

Liquidity

Our
cash on hand at December 31, 2021 was $42,167,000, compared to $4,301,000 (including restricted cash) at December 31, 2020. Since inception
through December 31, 2021, we incurred aggregate losses of $95,407,000. These losses are primarily due to selling, general and administrative
and research and development expenses incurred in connection with developing and seeking regulatory approval for a former drug candidate,
which activities we have now discontinued, the development and commercialization of novel compounded formulations and the development
of our pharmacy operations.

As
of the date of this Annual Report, we believe that cash and cash equivalents of $42,167,000 at December 31, 2021, will be sufficient
to sustain our planned level of operations and capital expenditures for at least the next 12 months. We also may consider the sale of
certain assets including, but not limited to, part of, or all of, our ownership interest in Eton, Surface, Melt, and/or any of our consolidated
subsidiaries. However, our plans for this period may change, our estimates of our operating expenses, capital expenditures and working
capital requirements could be inaccurate, we may pursue acquisitions of pharmacies or other strategic transactions that involve large
expenditures or we may experience growth more quickly 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 earlier than we expect 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 compounded formulations, FDA-approved products and technologies, integrating and developing our
compounding operations, pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of
products, compounding pharmacies and outsourcing facilities, drug companies and manufacturers, and/or assets or technologies, 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 Flows

The
following provides detailed information about our net cash flows for the years ended December 31, 2021 and 2020:

Operating
Activities

Net
cash provided by (used in) operating activities was $5,081,000 in 2021, compared to $(1,100,000) in the prior year. Net cash provided
by operating activities during the years ended December 31, 2021 was primarily attributed to the increase in product sales and associated
revenues and production efficiencies.

Investing
Activities

Net
cash used in investing activities in 2021 and 2020 was $(18,685,000) and $(981,000), respectively. Cash used in investing activities
in 2021 was primarily associated with cash payments made in connection with the issuance of the Melt note receivable and the acquisition
of the NVS Products, offset by cash received through the sale of a portion of our Eton Common Stock. Cash used in investing activities
during the 2020 period was primarily associated with equipment and software purchases and upgrades along with investments in our intellectual
property portfolio.

46

Financing
Activities

Net
cash provided by financing activities in 2021 and 2020 was $51,470,000 and $1,433,000, respectively. Cash provided by financing activities
during the year ended December 31, 2021 was primarily related to proceeds received from the sale of the Notes, net of the payment of
all outstanding obligations to the Company’s previous senior lender, SWK Funding, LLC and its partners (“SWK”). The
cash provided by financing activities during 2020 is primarily related to proceeds received from the amendment to our loan and security
agreement with SWK as well as proceeds received from the PPP Loan.

Sources
of Capital

Our
principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, and recently, proceeds from
the sale of the Notes and sale of Eton common stock. We may also sell some or all of our ownership interests in Surface, Melt or our
other subsidiaries, along with the some or all of the remaining portion of our Eton common stock.

The
changing trends and overall economic outlook in light of the COVID-19 pandemic, including the historic interim stay-at-home orders and
bans on elective surgeries, created uncertainty surrounding our operating outlook and may impact our future operating results if there
is a resurgence in COVID-19 cases in the U.S. In addition, we may acquire new products, product candidates and/or businesses and, as
a result, we may need significant additional capital to support our business plan and fund our proposed business operations. We may receive
additional proceeds from the exercise of stock purchase warrants that are currently 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.

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, 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. As a result,
sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are
acceptable to us. If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially
valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan,
which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back
or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing
and other activities, or we may be forced to discontinue our operations entirely.

Critical
Accounting Policies

We
rely on the use of estimates and make assumptions that impact our financial condition and results. These estimates and assumptions are
based on historical results and trends as well as our forecasts of how results and trends might change in the future. Although we believe
that the estimates we use are reasonable, actual results could differ materially from these estimates.

We
believe that the accounting policies described below are critical to understanding our business, results of operations and financial
condition because they involve the use of more significant judgments and estimates in the preparation of our consolidated financial statements.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that
are highly uncertain at the time the estimate is made, and any changes in the assumptions used in making the accounting estimates that
are reasonably likely to occur could materially impact our consolidated financial statements.

Revenue
Recognition and Deferred Revenue

We
account for contracts with customers in accordance with ASC 606, Revenues from Contracts with Customers. We have two primary streams
of revenue: (1) revenue recognized from our sale of products within our pharmacy services and (2) revenue recognized from intellectual
property license and asset purchase agreements.

47

Product
Revenues from Pharmacy Services

We
sell prescription drugs directly through our pharmacy and outsourcing facility network. Revenue from our pharmacy services divisions
includes: (i) the portion of the price the client pays directly to us, net of any volume-related or other discounts paid back to the
client, (ii) the price paid to us by individuals, and (iii) customer copayments made directly to the pharmacy network. Sales taxes are
not included in revenue. Following the core principles of ASC 606, we have identified the following:

The
following revenue recognition policy has been established for the pharmacy services division:

Revenues
generated from prescription or office use drugs sold by our pharmacies and outsourcing facility are recognized when the prescription
is shipped. At the time of shipment, the pharmacy services division has performed substantially all of its obligations under its client
contracts and does not experience a significant level of returns or reshipments. Determination of criteria (3) and (4) is based on management’s
judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. We record
reductions to revenue for discounts at the time of the initial sale. Estimated returns and allowances and other adjustments are provided
for in the same period during which the related sales are recorded and are based on actual returns history. The rate of returns is analyzed
annually to determine historical returns experience. If the historical data we use to calculate these estimates do not properly reflect
future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that
period could be materially affected. We will defer any revenues received for a product that has not been delivered or is subject to refund
until such time that we and the customer jointly determine that the product has been delivered and no refund will be required.

Commission
Revenues

During
the year ended December 31, 2020, we entered into an agreement whereby we are paid a fee calculated based on sales we generate from
a pharmaceutical product that is owned by a third party. The revenue earned from this arrangement is recognized at the time a customer
has ordered the pharmaceutical product and it has shipped from the third party (or one of its distributors or affiliates), at which point
there is no future performance obligation required by us and no consequential continuing involvement on our part to recognize the associated
revenue.

Transfer
of Profit Revenues

During
the year ended December 31, 2021, we entered into an agreement to purchase the exclusive commercial
rights to assets associated with certain ophthalmic products from another pharmaceutical company (the “Seller”). During a
temporary, transition period, the Seller will continue to manufacture and market these products, and transfer the net profit from
the sale of the products to us. The revenue recognized by us from the transfer of net profit is recognized at the time profit from the
products sales has been calculated by the Seller and confirmed by us, typically on a monthly basis, at which point there is no future
performance obligation required by us and no consequential continuing involvement on the us in part to recognize the associated revenue.

Intellectual
Property License Revenues

We
currently hold four intellectual property license and related agreements in which we have promised to grant a license or sale which provides
a customer with right to access our 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, each of which revenue is recognized
at the point of time the performance obligation is met.

48

Non-refundable
fees that are not contingent on any future performance by us and require no consequential continuing involvement on our part are recognized
as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverable is
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. We defer 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 our performance under the other elements of the arrangement. In addition, if our 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 us, 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.

Investment
in Eton Pharmaceuticals, Inc.

We
own 1,982,000 shares of Eton common stock, which represents approximately 8 % of the equity and voting interests of Eton as of December
31, 2021. At December 31, 2021, the fair market value of Eton’s common stock was $4.29 per share. In accordance with Accounting
Standard Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities, for the years ended December 31, 2021 and 2020, we recorded an investment (loss) gain from our
Eton common stock position of $(10,126,000) and $3,255,000 respectively, related to our investment in Eton during the measurement periods,
including a realized loss of $1,406,000 from the sale of 1,518,000 shares of Eton’s common stock. As of December 31, 2021 and
2020, the fair market value of our investment in Eton was $8,503,000 and $28,455,000, respectively.

Investment
in Surface Ophthalmics, Inc. – Related Party

We
own 3,500,000 common shares of Surface, which is approximately 20% of its equity interests as of December 31, 2021, and use the equity
method of accounting for this investment, as management has determined that we have the ability to exercise significant influence over
the operating and financial decisions of Surface. Under this method, we recognize earnings and losses in Surface in its consolidated
financial statements and adjusts the carrying amount of its investment in Surface accordingly. Our share of earnings and losses are based
on our ownership interest of Surface. Any intra-entity profits and losses are eliminated. We recorded equity in the net loss of Surface
of $2,433 during the year ended December 31, 2020. We recorded equity in the net loss of Surface of $1,314 during the year ended December
31, 2021. As of December 31, 2021 and 2020, the carrying value of our investment in Surface was $0 and $1,314, respectively.

See
Note 5 for more information and related party disclosure regarding Surface.

Investment
in Melt Pharmaceuticals, Inc. – Related Party

In
April 2018, we formed Melt as a wholly-owned subsidiary. In January and March of 2019, Melt entered into definitive stock purchase agreements
(collectively, the “Melt Series A Preferred Stock Agreement”) with certain investors and closed on the purchase and sale
of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately $11,400,000 of proceeds (collectively
the “Melt Series A Round”) at a purchase price of $5.00 per share. As a result, we lost voting and ownership control of Melt
and ceased consolidating Melt’s financial statements.

At
the time of deconsolidation, we recorded a gain of $5,810,000 and adjusted the carrying value in Melt to reflect the increased valuation
of Melt and our new ownership interest in accordance with ASC 810-10-40-4(c), Consolidation.

We
own 3,500,000 common shares of Melt, which is approximately 46% of its equity interests as of December 31, 2021. We analyze our investment
in Melt and related agreements on a regular basis to evaluate our position of variable interests in Melt. We no longer have a controlling
position in Melt; however, we do have the ability to exercise significant influence over the operating and financial decisions of Melt.
We use the equity method of accounting for this investment. Under this method, we recognize earnings and losses of Melt in its consolidated
financial statements and adjusts the carrying amount of its investment in Melt accordingly. Our share of earnings and losses are based
on our ownership interest of Melt. Any intra-entity profits and losses are eliminated. During the year ended December 31, 2021 we reduced
our common stock investment in Melt to $0. As of December 31, 2021 and at the time of entering into the Melt Loan Agreement, we owned
100% of the debt owed by Melt. Following the reduction of the carrying value of our common stock investment in Melt to $0 we began recording
100% of the equity method losses of Melt, based on our ownership of total debt owed by Melt. We recorded equity in net loss of Melt of
$4,020,000 and $2,313,000 during the year ended December 31, 2021 and 2020, respectively. Our investment in Melt was $11,133,000
and $2,506,000 and $48,000 and $851,000 is due from Melt for reimbursable expenses and amounts due under the Melt Master
Service Agreement (“Melt MSA”) as of December 31, 2021 and 2020, respectively.

See
Notes 2 and 4 for more information and related party disclosure regarding Melt.

Stock-Based
Compensation

All
stock-based payments to employees, directors and consultants, including grants of stock options, warrants, restricted stock units and
restricted stock, are recognized in the consolidated financial statements based upon their estimated fair values. We use the Black-Scholes
option pricing model and Monte-Carlo simulation model to estimate the fair value of stock-based awards. Fair value is determined at the
date of grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual
effect differs from those estimates.

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Income
Taxes

As
part of the process of preparing our consolidated financial statements, we must estimate the actual current tax assets and liabilities
and assess permanent and temporary differences that result from differing treatment of items for tax and accounting purposes. The temporary
differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. We must assess
the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery
is not more likely than not, a valuation allowance must be established which reduces the amount of deferred tax assets recorded on the
consolidated balance sheets. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the
impact will be included in income tax expense in the consolidated statements of operations.

We
account for income taxes under the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification
(“ASC”) 740, Income Taxes. As of December 31, 2021 and 2020, there were no unrecognized tax benefits included in the
consolidated balance sheets that would, if recognized, affect the effective tax rate. Our practice is to recognize interest and/or penalties
related to income tax matters in income tax expense. We had no accrual for interest or penalties in its consolidated balance sheets at
December 31, 2021 and 2020, and have not recognized interest and/or penalties in the consolidated statements of operations for the years
ended December 31, 2021 and 2020. We are subject to taxation in the United States, California, Florida, Georgia, Illinois, New Jersey,
New York, Tennessee, and Wisconsin. Our tax years since 2000 may be subject to examination by the federal and state tax authorities due
to the carryforward of unutilized net operating losses.

Research
and Development

R&D
expenses consist of expenses incurred in performing research and development activities, including salaries and benefits, other overhead
expenses, and costs related to clinical trials, contract services and outsourced contracts. We expense all costs related to R&D as
they are incurred.

Upfront
and milestone payments related to the acquisition and licensing of technology for drug and product candidates that are not yet approved
by the FDA are considered acquisition of in process R&D and expensed as R&D in the period in which the expense occurs.

Intellectual
Property

The
costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone
payments, are charged to research and development expense as incurred in situations where we have not identified an alternative future
use for the acquired rights, and are capitalized in situations where we have identified an alternative future use for the acquired rights.
Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks
become more certain (see “—Goodwill and Intangible Assets” below). We began capitalizing certain costs associated with
acquiring intellectual property rights during 2015, if costs are not capitalized, they are expensed as incurred.

Impairment
of Long-Lived Assets

Long-lived
assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed would
be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to
sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately
in the appropriate asset and liability sections of the consolidated balance sheet, if material.

Goodwill
and Intangible Assets

Patents
and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks become
more certain. At that time, we capitalize third-party legal costs and filing fees associated with obtaining and prosecuting claims related
to its patents and trademarks. Once the patents have been issued, we amortize these costs over the shorter of the legal life of the patent
or its estimated economic life, generally 20 years, using the straight-line method. Trademarks are an indefinite life intangible asset
and are assessed for impairment based on future projected cash flows as further described below.

We
review our goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year and when an event or a change
in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered
as impairment indicators include but are not limited to the following:

50

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

Step
1. We compare the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting
unit is determined using a discounted cash flow valuation analysis. The carrying amount of each reporting unit is determined by specifically
identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues or other methods as
deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting
unit’s goodwill may be impaired and we then perform the second step of the impairment test. If the fair value of a reporting unit
exceeds its carrying amount, no further analysis is required.

Step
2. If further analysis is required, we compare the implied fair value of the reporting unit’s goodwill, determined by allocating
the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to
its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be
recognized in an amount equal to the excess.

Debt
Issuance Costs and Debt Discount

Debt
issuance costs and the debt discount are recorded net of loans payable in the consolidated balance sheet. Amortization of debt issuance
costs and the debt discount is calculated using the effective interest method over the term of the debt and is recorded in interest expense
in the accompanying consolidated statement of operations.

Off-Balance
Sheet Arrangements

Since
our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of
structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

51