# Harrow (HROW) 10-Q SEC filing - Q1 FY2026
- Filed: May 11, 2026, 4:31 PM EDT
- Fiscal quarter: Q1 FY2026
- Calendar quarter: Q1 2026
- Accession: 0001493152-26-022254
- OpenCapital page: https://www.opencapital.sh/filings/0001493152-26-022254
- Markdown URL: https://www.opencapital.sh/filings/0001493152-26-022254.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/1360214/000149315226022254/0001493152-26-022254-index.htm
## Filing documents
- [10-Q (form10-q.htm)](https://www.sec.gov/Archives/edgar/data/1360214/000149315226022254/form10-q.htm)
---
## 10-Q
SEC source: [form10-q.htm](https://www.sec.gov/Archives/edgar/data/1360214/000149315226022254/form10-q.htm)
**UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**Washington,
D.C. 20549**
**FORM10-Q**
**☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For
the quarterly period ended March 31, 2026**
**or**
**☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
**For
the transition period from ___________ to _____________**
**Commission
File Number: 001-35814**
**Harrow,
Inc.**
(Exact
name of registrant as specified in its charter)
**Delaware** **45-0567010**
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
| 1A Burton Hills Blvd., Suite 200 Nashville, Tennessee | 37215 |
| --- | --- |
| (Address of principal executive offices) | (Zip code) |
**(615) 733-4730**
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name on exchange on which registered
Common Stock, $0.001 par value per share HROW The Nasdaq Stock Market LLC
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of May 6, 2026, there were 37,275,107 shares of the registrant’s common stock, $0.001 par value, outstanding.
**HARROW,
INC.**
Table
of Contents
| | | **Page** |
| --- | --- | --- |
| Part I | [FINANCIAL INFORMATION](#RV_001) | 2 |
| Item 1. | [Financial Statements (unaudited)](#RV_002) | 2 |
| Item 2. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ns_001) | 19 |
| Item 3. | [Quantitative and Qualitative Disclosures About Market Risk](#ns_002) | 24 |
| Item 4. | [Controls and Procedures](#ns_003) | 25 |
| Part II | [OTHER INFORMATION](#ns_004) | 26 |
| Item 1. | [Legal Proceedings](#ns_005) | 26 |
| Item 1A. | [Risk Factors](#ns_006) | 26 |
| Item 2. | [Unregistered Sales of Equity Securities and Use of Proceeds](#ns_007) | 27 |
| Item 3. | [Defaults Upon Senior Securities](#ns_008) | 27 |
| Item 4. | [Mine Safety Disclosures](#ns_009) | 27 |
| Item 5. | [Other Information](#ns_010) | 27 |
| Item 6. | [Exhibits](#ns_011) | 27 |
| | [Signatures](#ns_012) | 29 |
1
**PART
I**
**FINANCIAL
INFORMATION**
## Item 1. Financial Statements (unaudited) Item
1. Financial Statements**
**HARROW, INC.**
### CONDENSED CONSOLIDATED BALANCE SHEETS
| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| ASSETS | | |
| Current assets | | |
| Cash and cash equivalents | $94,644,000 | $72,927,000 |
| Accounts receivable, net | 101,259,000 | 110,895,000 |
| Inventories | 16,496,000 | 13,523,000 |
| Prepaid expenses and other current assets | 13,985,000 | 14,405,000 |
| Total current assets | 226,384,000 | 211,750,000 |
| Property, plant and equipment, net | 3,130,000 | 3,260,000 |
| Capitalized software costs, net | 1,052,000 | 1,183,000 |
| Operating lease right-of-use assets, net | 7,591,000 | 7,783,000 |
| Intangible assets, net | 181,054,000 | 175,174,000 |
| Goodwill | 332,000 | 332,000 |
| TOTAL ASSETS | $419,543,000 | $399,482,000 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| Current liabilities | | |
| Accounts payable and accrued expenses | $30,017,000 | $41,959,000 |
| Accrued rebates and copay assistance | 51,127,000 | 42,236,000 |
| Accrued payroll and related liabilities | 9,231,000 | 10,432,000 |
| Deferred revenue and customer deposits | 149,000 | 788,000 |
| Current portion of operating lease obligations | 915,000 | 887,000 |
| Total current liabilities | 91,439,000 | 96,302,000 |
| Operating lease obligations, net of current portion | 7,666,000 | 7,905,000 |
| Notes payable, net of unamortized debt discount | 292,087,000 | 243,184,000 |
| TOTAL LIABILITIES | 391,192,000 | 347,391,000 |
| Commitments and contingencies | | |
| STOCKHOLDERS’ EQUITY | | |
| Common stock, $0.001 par value, 50,000,000 shares authorized, 37,269,400 and 37,229,159 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively | 37,000 | 37,000 |
| Additional paid-in capital | 212,795,000 | 208,933,000 |
| Accumulated deficit | (184,126,000) | (156,524,000) |
| TOTAL HARROW, INC. STOCKHOLDERS’ EQUITY | 28,706,000 | 52,446,000 |
| Noncontrolling interests | (355,000) | (355,000) |
| TOTAL STOCKHOLDERS’ EQUITY | 28,351,000 | 52,091,000 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $419,543,000 | $399,482,000 |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
2
**HARROW,
INC.**
**UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**
| Line item | 2026 / For the Three Months Ended March 31, | 2025 / For the Three Months Ended March 31, |
| --- | --- | --- |
| Revenues: | | |
| Product sales, net | $44,130,000 | $47,745,000 |
| Other revenues | 73,000 | 86,000 |
| Total revenues | 44,203,000 | 47,831,000 |
| Cost of sales | (17,158,000) | (15,524,000) |
| Gross profit | 27,045,000 | 32,307,000 |
| Operating expenses: | | |
| Selling, general and administrative | 43,230,000 | 40,513,000 |
| Research and development | 5,895,000 | 3,026,000 |
| Total operating expenses | 49,125,000 | 43,539,000 |
| Loss from operations | (22,080,000) | (11,232,000) |
| Interest expense, net | (5,497,000) | (6,548,000) |
| Loss before income taxes | (27,577,000) | (17,780,000) |
| Income tax expense | (25,000) | - |
| Net loss | $(27,602,000) | $(17,780,000) |
| Basic and diluted net loss per share of common stock | $(0.74) | $(0.50) |
| Weighted average number of shares of common stock outstanding, basic and diluted | 37,231,321 | 35,826,452 |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
**HARROW,
INC.**
**UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**
**For
the Three Months Ended March 31, 2026 and 2025**
| Line item | Shares / Common Stock | Value / Common Stock / Par | Capital / Additional / Paid-in | Deficit / Accumulated | Equity / Total / Harrow, Inc. / Stockholders’ | Equity / Total / Noncontrolling / Interest | Equity / Total / Stockholders’ |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at January 1, 2025 | 35,622,214 | $35,000 | $221,002,000 | $(151,385,000) | $69,652,000 | $(355,000) | $69,297,000 |
| Issuance of common stock in connection with: | | | | | | | |
| Exercise of employee stock-based options | 2,743 | - | 23,000 | - | 23,000 | - | 23,000 |
| Vesting of RSUs | 29,214 | - | - | - | - | - | - |
| Stock-based compensation expense | - | - | 4,556,000 | - | 4,556,000 | - | 4,556,000 |
| Net loss | - | - | - | (17,780,000) | (17,780,000) | - | (17,780,000) |
| Balance at March 31, 2025 | 35,654,171 | $35,000 | $225,581,000 | $(169,165,000) | $56,451,000 | $(355,000) | $56,096,000 |
| Line item | Common Stock / Shares | Common Stock / Par / Value | Additional / Paid-in / Capital | Accumulated / Deficit | Total / Harrow, Inc. / Stockholders’ / Equity | Total / Noncontrolling / Interest / Equity | Total / Stockholders’ / Equity |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at January 1, 2026 | 37,229,159 | $37,000 | $208,933,000 | $(156,524,000) | $52,446,000 | $(355,000) | $52,091,000 |
| Balance | 37,229,159 | $37,000 | $208,933,000 | $(156,524,000) | $52,446,000 | $(355,000) | $52,091,000 |
| Issuance of common stock in connection with: | | | | | | | |
| Exercise of employee stock-based options | 40,241 | - | 25,000 | - | 25,000 | - | 25,000 |
| Stock-based compensation expense | - | - | 3,837,000 | - | 3,837,000 | - | 3,837,000 |
| Net loss | - | - | - | (27,602,000) | (27,602,000) | - | (27,602,000) |
| Balance at March 31, 2026 | 37,269,400 | $37,000 | $212,795,000 | $(184,126,000) | $28,706,000 | $(355,000) | $28,351,000 |
| Balance | 37,269,400 | $37,000 | $212,795,000 | $(184,126,000) | $28,706,000 | $(355,000) | $28,351,000 |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
**HARROW,
INC.**
**UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
| Line item | 2026 / For the Three Months Ended March 31, | 2025 / For the Three Months Ended March 31, |
| --- | --- | --- |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net loss | $(27,602,000) | $(17,780,000) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | |
| Depreciation and amortization of property, plant and equipment and software development costs | 455,000 | 465,000 |
| Amortization of intangible assets | 5,129,000 | 4,226,000 |
| Noncash lease expense | 192,000 | 217,000 |
| (Recovery of) Provision for credit losses | (195,000) | 114,000 |
| Amortization of debt issuance costs and debt discount | 451,000 | 1,275,000 |
| Stock-based compensation | 3,837,000 | 4,556,000 |
| Changes in assets and liabilities: | | |
| Accounts receivable | 9,831,000 | 39,196,000 |
| Inventories | (2,973,000) | (14,000) |
| Prepaid expenses and other current assets | 346,000 | 299,000 |
| Accounts payable, accrued expenses, accrued rebates and copay assistance | 3,377,000 | (11,096,000) |
| Accrued payroll and related liabilities | (1,201,000) | (1,891,000) |
| Deferred revenue and customer deposits | (639,000) | 101,000 |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (8,992,000) | 19,668,000 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| Investment in patent and trademark assets | (9,000) | (42,000) |
| Purchase of product rights | (18,000,000) | - |
| Purchases of property, plant and equipment | (194,000) | (170,000) |
| NET CASH USED IN INVESTING ACTIVITIES | (18,203,000) | (212,000) |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| Net proceeds from 8.625% notes payable, net of commissions | 49,000,000 | - |
| Payment of debt issuance costs | (113,000) | - |
| Proceeds from exercise of stock options | 25,000 | 23,000 |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 48,912,000 | 23,000 |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 21,717,000 | 19,479,000 |
| CASH AND CASH EQUIVALENTS, beginning of period | 72,927,000 | 47,247,000 |
| CASH, CASH EQUIVALENTS, end of period | $94,644,000 | $66,726,000 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| Cash paid for income taxes | - | $38,000 |
| Cash paid for interest | $10,960,000 | $6,392,000 |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | |
| Unpaid debt issuance costs | $361,000 | - |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
**HARROW,
INC.**
**NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
**For
the Three Months Ended March 31, 2026 and 2025**
### **NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION**
**Company
and Background**
Harrow, Inc. (together with its consolidated subsidiaries, unless the context indicates or otherwise requires, the “Company”
or “Harrow”) is a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of
innovative ophthalmic pharmaceutical products for the U.S. market. Harrow helps U.S. eyecare professionals preserve the gift of sight
by making its comprehensive portfolio of prescription and non-prescription pharmaceutical products accessible and affordable to millions
of Americans each year. The Company owns commercial rights to one of the largest portfolios of branded ophthalmic pharmaceutical products
in the U.S., all of which are marketed under its Harrow name. The Company also owns and operates ImprimisRx, one of the nation’s
leading ophthalmology-focused pharmaceutical-compounding businesses.
**Basis
of Presentation**
The
Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the
rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes
required by GAAP for audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31,
2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026 or for any other period.
For further information, refer to the Company’s audited consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2025.
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned
subsidiaries.
Harrow
consolidates entities in which it has a controlling financial interest. The Company assesses control under the variable interest entity
(“VIE”) model to determine whether the Company is the primary beneficiary of that entity. The Company consolidates (i) entities
in which it holds and/or controls, directly or indirectly, more than 50% of the voting rights, and (ii) VIEs for which the Company is
deemed to be the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation.
### **NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
The
following represents an update for the three months ended March 31, 2026 to the significant accounting policies described in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2025.
**Use
of Estimates**
The
preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. Significant estimates made by management are, among others, allowance
for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates,
returns and other allowances, renewal periods and discount rates for leases, realizability of inventories, recoverability of investments,
realizability of deferred tax assets, recoverability of long-lived assets and goodwill, valuations and purchase price allocations related
to business combinations and asset acquisitions, fair value of loans payable, and valuation of stock-based transactions with employees
and non-employees. Actual results could differ from those estimates.
6
**Risks,
Uncertainties and Liquidity**
The
Company is subject to certain regulatory standards, approvals, guidelines and inspections which could impact the Company’s ability
to make, dispense, and sell certain products. If the Company was required to cease compounding and selling certain products because of
regulatory guidelines or inspections, this may have a material impact on the Company’s financial condition, liquidity and results
of operations.
**Credit
Losses**
The
Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables.
Management considers historical collection rates, the current financial status of the Company’s customers, macroeconomic factors,
and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered
in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable,
management believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical
and current analysis of such financial instruments, including its trade receivables.
To
determine the provision for credit losses for accounts receivable, the Company has disaggregated its accounts receivable by class of
customer at the business component level, as management determined that the risk profile of the Company’s customers is consistent
based on the type and industry in which they operate, mainly in the pharmaceuticals industry. Each business component is analyzed for
estimated credit losses individually. In doing so, the Company establishes a historical loss matrix, based on the previous collections
of accounts receivable by the age of such receivables, and evaluates the current and forecasted financial position of its customers,
as available. Further, the Company considers macroeconomic factors and the status of the pharmaceuticals industry to estimate if there
are current expected credit losses within its trade receivables based on the trends of the Company’s expectation of the future
status of such economic and industry-specific factors. Also, specific allowance amounts are established based on review of outstanding
invoices to record the appropriate provision for customers that have a higher probability of default.
The
following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net
amount expected to be collected at March 31, 2026:
SCHEDULE
OF ACCOUNTS RECEIVABLE ALLOWANCE OF CREDIT LOSS
| Balance, January 1, 2026 | 884,000 |
| --- | --- |
| Change in expected credit losses | (195,000) |
| Write-offs, net of recoveries | (38,000) |
| Balance, March 31, 2026 | $651,000 |
**Fair
Value Measurements**
Fair
value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. GAAP
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes
the use of inputs used in valuation methodologies into the following three levels:
- Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.
- Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
- Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, Level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.
7
The
Company’s 2030 Notes (as defined in Note 8) are carried at face value, including the unamortized premium, less unamortized debt
issuance costs on the condensed consolidated balance sheets and the Company presents fair value for disclosure purposes only. The 2030
Notes are classified as Level 1 instruments as the fair value is determined using quoted market prices in active markets for the same
securities.
The
following table presents the estimated fair values and the carrying values:
SCHEDULE
OF ESTIMATED FAIR VALUE
| | March 31, 2026 / Carrying Value | March 31, 2026 / Fair Value | December 31, 2025 / Carrying Value | December 31, 2025 / Fair Value |
| --- | --- | --- | --- | --- |
| 2030 Notes | $292,087,000 | $303,750,000 | $243,184,000 | $262,500,000 |
The
Company’s other financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses,
accrued payroll and related liabilities, deferred revenue and customer deposits and operating lease liabilities. The carrying amount
of these financial instruments, except for operating lease liabilities, approximates fair value due to the short-term maturity of these
instruments. Based on borrowing rates currently available to the Company, the carrying value of the operating lease liabilities approximate
their respective fair values.
**Basic
and Diluted Net Loss per Common Share**
Basic
net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to
common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options, restricted
stock units (“RSUs”), performance stock units (“PSUs”), and warrants, outstanding during the period. Common equivalent
shares (using the treasury stock or “if converted” method) from stock options, unvested RSUs, unvested PSUs were 1,556,232 and 4,367,766 at March 31, 2026 and 2025, respectively, and are excluded in the calculation of diluted net loss per common share for
the periods presented, because the effect is anti-dilutive. Included in the basic and diluted net loss per share calculation were RSUs
awarded to directors that had vested, but the issuance and delivery of the shares are deferred until the director ceases providing services
to the Company. The number of shares underlying vested RSUs at March 31, 2026 and 2025 was 195,785 and 199,216, respectively.
**Accounting
Guidance Issued but Not Adopted at March 31, 2026**
In
October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06*,
Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative*.
This ASU modifies the disclosure or presentation requirements of a variety of topics in the codification by aligning them with the SEC’s
regulations. The amendments to the various topics should be applied prospectively, and the effective date for the Company for each amendment
will be determined based on the effective date of the SEC’s removal of the related disclosure from Regulation S-X or Regulation
S-K. If the SEC has not removed the applicable requirement by June 30, 2027, then the related amendment in ASU 2023-06 will be removed
from the codification and will not become effective. Early adoption of this ASU is prohibited. The Company does not expect the amendments
in this ASU to have a material impact on the disclosures or presentation in its consolidated financial statements.
In
November 2024, the FASB issued ASU 2024-03*, Income Statement – Reporting Comprehensive Income – Expense Disaggregation
Disclosures*, to improve the disclosures by a public business entity about the types of expenses in commonly presented expense captions.
This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December
15, 2027, with early adoption permitted. Except for expanded footnote disclosure, the Company does not expect the adoption of ASU 2024-03
will have a material effect on its consolidated financial statements.
8
### **NOTE 3. REVENUES**
The
Company accounts for contracts with customers in accordance with ASC 606, *Revenues from Contracts with Customers* (“ASC 606”).
The Company has two primary streams of revenue: (1) product revenues, including revenue recognized from sales of products through its
pharmacy and outsourcing facility and sales of branded products to wholesalers through a third-party logistics (“3PL”) partner,
and (2) revenue recognized from intellectual property licenses and related arrangements.
*Product
Revenues*
The
Company sells prescription medications directly through its pharmacy, outsourcing facility and 3PL partner. Revenue from the Company’s
pharmacy services includes: (i) the portion of the price the client pays directly to the Company, net of any volume-related or other
discounts paid back to the client, (ii) the price paid to the Company by individuals, and (iii) customer copayments made directly to
the pharmacy network. Sales taxes are not included in revenue. Following the core principles of ASC 606, the Company has identified the
following:
| 1. | Identify the contract(s) with a customer: A contract is deemed to exist when the customer places an order through receipt of a prescription, via an online order or via receipt of a purchase order from a customer. For branded products, orders are received through the Company’s 3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled. |
| --- | --- |
| 2. | Identify the performance obligations in the contract: Obligations for fulfillment of the Company’s contracts consist of delivering the product to customers at their specified destination. For shipping and handling activities under ASC 606, if the customer takes control of the goods after shipment, shipping and handling activities would always be considered a fulfillment activity and not treated as a separate performance obligation. If the customer takes control of the goods before shipment, entities must make an accounting policy election to treat shipping and handling activities as either a fulfillment cost or as a separate performance obligation. The Company has elected to treat its shipping and handling activities as a fulfillment cost. |
| 3. | Determine the transaction price: The transaction price is based on an amount that reflects the consideration to which the Company expects to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts, copay assistance and other deductions (collectively, sales deductions) and an estimate for returns and replacements established at the time of sale. The Company utilizes the services of a third-party professional services firm to estimate rebates and chargebacks associated with sales of its branded products. The transfer of promised goods is satisfied within a year, and therefore there are no significant financing components. There is no non-cash consideration related to product sales. |
| 4. | Allocate the transaction price to the performance obligations in the contract: Because there is only one performance obligation for product sales, no allocation is necessary. |
| 5. | Recognize revenue when (or as) the entity satisfies a performance obligation: Revenue from products is recognized upon transfer of control of a product to a customer. This generally occurs upon shipment unless contractual terms with a customer state that transfer of control occurs at delivery. |
***Variable
Consideration***
Sales
of branded pharmaceutical products are subject to variable consideration due to chargebacks, government rebates, returns, administrative
fees, co-pay assistance and other rebates, and prompt pay discounts. Estimates for these elements of variable consideration require significant
judgment.
9
*Chargebacks*
Chargebacks,
primarily from distributors and wholesalers, result from arrangements with indirect customers establishing prices for products which
the indirect customer purchases through a wholesaler. Alternatively, the Company may pre-authorize wholesalers to offer specified contract
pricing to other indirect customers. Under either arrangement, the Company provides a chargeback credit to the wholesaler for any difference
between the contracted price with the indirect customer and the wholesaler’s invoice price, typically Wholesale Acquisition Cost
(“WAC”).
Prior
period chargebacks claimed by wholesalers are analyzed to determine the actual net price per package (“NPP”) for each product.
This calculation is performed by product, by wholesaler. NPPs can be affected by several factors such as:
- Changes in customer mix
- Changes in negotiated terms with customers
- Changes in the volume of off-contract purchases
- Changes in WAC
As
necessary, NPPs are adjusted based on anticipated changes in the factors above.
The
difference between NPP and WAC is recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts
receivable in the consolidated balance sheets, at the time revenue is recognized from the product sale. The Company continually monitors
chargeback activity and adjusts NPPs when the Company believes that actual selling prices will differ from current NPPs.
Estimates
for chargebacks, distribution service fees, wholesaler fees, and other commercial deductions may also be affected by timing differences,
duplicate deductions, incorrect unit data, misapplied contractual rates, and other reconciliation matters, and the Company adjusts such
estimates as claims are reconciled, disputed, settled, credited, refunded, offset, recouped, recovered, or otherwise resolved.
*Rebates*
Rebates
include estimated amounts payable to certain group purchasing organizations (“GPOs”) and under government rebate
programs. GPO rebates are generally based on contractual rebate arrangements and are estimated using eligible sales volume,
customer and channel mix, and available purchasing or utilization information. Rebates reserve consists of estimated payments due to
governmental agencies or their administrators for utilization of the Company’s products by beneficiaries under such
governmental programs. The two largest government programs are Medicaid and Medicare.
The
Company participates in the Medicaid Drug Rebate Program and pays rebates to the states related to Medicaid beneficiary utilization of
the Company’s products. Medicaid rebates are billed within 60-90 days of the end of the quarter in which the product was dispensed
to a Medicaid beneficiary. Medicaid rebate amounts per product unit are established by law, based on the Average Manufacturer Price (“AMP”),
which is reported on a monthly and quarterly basis, and, in the case of branded products, best price, which is reported on a quarterly
basis. Medicaid reserves are based on expected claims from state Medicaid programs. Estimates for expected claims are driven by patient
usage, sales mix, calculated AMP or best price, as well as inventory in the distribution channel that will be subject to a Medicaid rebate.
As a result of the delay between selling the products, dispensing the products and rebate billing, the Medicaid rebate reserve includes
both an estimate of outstanding claims for end-customer sales that have occurred but for which the related claim has not been billed,
as well as an estimate for future claims that will be made when inventory in the distribution channel is sold through to plan participants.
Many
of the Company’s branded products are also covered under Medicare. Beginning in 2025, the Medicare Part D benefit was redesigned
under the Inflation Reduction Act, and the Coverage Gap Discount Program was replaced by the Medicare Part D Manufacturer Discount Program.
To the extent the Company’s applicable branded products are covered under Medicare Part D, the Company is required to provide manufacturer
discounts under that program during the applicable phases of the redesigned Part D benefit. The Company may also be subject to Medicare
Part B and Medicare Part D inflation rebates and other statutory government pricing obligations, including under the Inflation Reduction
Act, as applicable. Estimates for these rebates and discounts are based on historical experience with Medicare rebates for products available
utilization data, applicable statutory formulas and program guidance, and other information available at the time the reserve is estimated.
Medicare rebates and discounts are billed quarterly for drugs dispensed to Medicare beneficiaries in the prior quarter, which is typically
120 days after the product is shipped. As a result of the delay between selling the products, dispensing the products and rebate billing,
Medicare rebate reserve includes both an estimate of outstanding claims for end-customer sales that have occurred but for which the related
claim has not been billed, as well as an estimate for future claims that will be made when inventory in the distribution channel is sold
through to Medicare beneficiaries.
10
Government
rebate reserves require significant judgment and may be affected by incomplete or delayed claims data, changes in utilization or payor
mix, channel inventory levels, labeler-code or product attribution, statutory or regulatory interpretations, and claims submitted by
governmental agencies, customers, former product owners, or other third parties. From time to time, the Company may receive claims, invoices,
or rebate demands that it believes are unsupported, duplicative, overstated, not attributable to the Company or its products, or otherwise
inconsistent with applicable program requirements. The Company evaluates such matters as part of its estimate of variable consideration
under ASC 606 and adjusts reserves when additional information becomes available or when claims are validated, settled, credited, refunded,
offset, recouped, or otherwise resolved.
To
evaluate the adequacy of the government rebate reserves, reserves are reviewed on a quarterly basis against actual claims data and other
available information to assess whether the liability is appropriately stated. The Company continually monitors the government rebate
reserve and adjusts estimates if it is expected that actual government rebates may differ from established accruals. Accruals for government
rebates are recorded as a reduction to gross revenues in the consolidated statements of operations and as an increase to accrued rebates
in the consolidated balance sheets.
*Returns*
A
returns policy is in place that allows customers to return product within a specified period prior to and subsequent to the expiration
date. Generally, product may be returned for a period beginning six months prior to its expiration date to up to one year after its expiration
date. Product returns are settled through the issuance of a credit to the customer. The estimate for returns is based upon historical
experience with actual returns. While such experience has allowed for reasonable estimation in the past, history may not always be an
accurate indicator of future returns. The Company continually monitors estimates for returns and adjusts when it is expected that actual
product returns may differ from the established accruals. Accruals for returns are recorded as a reduction to gross revenues in the consolidated
statements of operations and as a decrease to accounts receivable in the consolidated balance sheets.
*Administrative
Fees and Other Rebates*
Administrative
fees and/or rebates are offered to wholesalers and indirect customers. Fees and rebates are
accrued, by product by wholesaler, at the time of sale based on contracted rates and NPP. To evaluate the adequacy of the
administrative fee accruals, on-hand inventory counts are obtained from the wholesalers. The Company continually monitors
administrative fee activity and adjusts accruals when it is expected that actual administrative fees may differ from the accruals.
Accruals for administrative fees and other rebates are recorded as a reduction in both gross revenues in the consolidated statements
of operations and accounts receivable or accrued expenses in the consolidated balance sheets.
*Co-payment
Assistance*
Patients
who meet certain eligibility requirements may receive co-payment assistance funded by the Company. The Company records contra-revenue
for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party
administrators. An accrued liability is recorded on unredeemed co-payment assistance related to products for which control has been transferred
to the customer.
*Prompt
Payment Discounts*
Sales
discounts may be granted to customers for prompt payment. The reserve for prompt payment discounts is based on invoices outstanding.
Based on past experience, it is assumed that all available discounts will be taken. Accruals for prompt payment discounts are recorded
as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the condensed consolidated
balance sheets.
11
The
following table summarizes activity and ending balances of the Company’s variable consideration provisions in the consolidated
financial statements for the three months ended March 31, 2026 and 2025:
SCHEDULE
OF ACCRUALS AND ALLOWANCES
| Line item | Chargebacks / Accruals for Chargebacks, Returns, and Other Allowances | Rebates / Accruals for Chargebacks, Returns, and Other Allowances | Returns / Accruals for Chargebacks, Returns, and Other Allowances | Administrative Fees and Other Rebates / Accruals for Chargebacks, Returns, and Other Allowances | Co-Pay Assistance / Accruals for Chargebacks, Returns, and Other Allowances | Prompt Pay Discounts / Accruals for Chargebacks, Returns, and Other Allowances | Total / Accruals for Chargebacks, Returns, and Other Allowances |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at December 31, 2024(1) | $960,000 | $12,360,000 | $1,449,000 | $32,873,000 | $9,612,000 | $2,377,000 | $59,631,000 |
| Accruals/Adjustments | 5,325,000 | 5,857,000 | 2,670,000 | 14,907,000 | 20,824,000 | 1,058,000 | 50,641,000 |
| Credits Taken Against Reserve | (3,687,000) | (3,136,000) | (2,590,000) | (28,698,000) | (27,109,000) | (1,943,000) | (67,163,000) |
| Balance at March 31, 2025(1) | $2,598,000 | $15,081,000 | $1,529,000 | $19,082,000 | $3,327,000 | $1,492,000 | $43,109,000 |
| Balance at December 31, 2025(1) | $11,027,000 | $28,217,000 | $8,018,000 | $16,540,000 | $2,085,000 | $2,494,000 | $68,381,000 |
| Accruals/Adjustments | 505,000 | 8,388,000 | (337,000) | 35,731,000 | 6,496,000 | 363,000 | 51,146,000 |
| Credits Taken Against Reserve | (5,272,000) | (9,514,000) | (2,076,000) | (26,376,000) | (7,058,000) | (1,584,000) | (51,880,000) |
| Balance at March 31, 2026(1) | $6,260,000 | $27,091,000 | $5,605,000 | $25,895,000 | $1,523,000 | $1,273,000 | $67,647,000 |
(1) Chargebacks and other allowances are included as an offset to accounts receivable in the condensed consolidated balance sheets. Administrative Fees and Other Rebates, Prompt Payment Discounts and Returns are included as a reduction to accounts receivable, net of chargebacks and other allowances or accrued expenses and other in the condensed consolidated balance sheets. Government rebates are included in accrued government rebates and copay assistance in the condensed consolidated balance sheets.
Deferred
revenue and customer deposits at March 31, 2026 and December 31, 2025 were $149,000 and $788,000, respectively. All deferred revenue
and customer deposit amounts at December 31, 2025 were recognized as revenue during the three months ended March 31, 2026.
### **NOTE 4. INVENTORIES**
Inventories
are comprised of finished compounded formulations, over-the-counter and prescription retail pharmacy products, branded pharmaceutical
products, including those held at the Company’s 3PL partner, related laboratory supplies and active pharmaceutical ingredients. The composition of inventories as of March 31, 2026
and December 31, 2025 was as follows:
SCHEDULE
OF INVENTORIES
| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Raw materials | $7,481,000 | $6,958,000 |
| Work in progress | 589,000 | 1,036,000 |
| Finished goods | 8,426,000 | 5,529,000 |
| Total inventories | $16,496,000 | $13,523,000 |
12
### **NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS**
Prepaid
expenses and other current assets at March 31, 2026 and December 31, 2025 consisted of the following:
SCHEDULE
OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Prepaid insurance | $929,000 | $2,185,000 |
| Prepaid computer software licenses and related expenses | 1,224,000 | 598,000 |
| Prefunded co-pay assistance | 3,377,000 | 3,342,000 |
| Other prepaid expenses | 4,241,000 | 1,825,000 |
| Annual Prepaid Prescription Drug User (“PDUFA”) fees | 2,885,000 | 4,327,000 |
| Deposits and other current assets | 1,329,000 | 2,128,000 |
| Total prepaid expenses and other current assets | $13,985,000 | $14,405,000 |
### **NOTE 6. INTANGIBLE ASSETS AND GOODWILL**
The
Company’s intangible assets at March 31, 2026 consisted of the following:
SCHEDULE OF INTANGIBLE ASSETS
| Line item | Weighted-average useful life (in years) | Cost | Accumulated Amortization | Net Carrying Value |
| --- | --- | --- | --- | --- |
| Definite-lived Intangibles | | | | |
| Patents | 19 | $239,000 | $(70,000) | $169,000 |
| Licenses | 20 | 50,000 | (39,000) | 11,000 |
| Acquired product rights | 14 | 225,480,000 | (45,042,000) | 180,438,000 |
| Customer relationships | 7 | 190,000 | (152,000) | 38,000 |
| Trade name | 5 | 70,000 | (4,000) | 66,000 |
| State pharmacy licenses | 25 | 8,000 | (4,000) | 4,000 |
| Indefinite-lived Intangibles | | | | |
| Trademarks | Indefinite | 328,000 | - | 328,000 |
| | | $226,365,000 | $(45,311,000) | $181,054,000 |
Amortization
expense for intangible assets for the three months ended March 31, 2026 and 2025 was as follows:
SCHEDULE OF AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS
| Line item | 2026 / For the Three Months Ended March 31, | 2025 / For the Three Months Ended March 31, |
| --- | --- | --- |
| Patents | $5,000 | $3,000 |
| Acquired NDAs | 5,121,000 | 4,220,000 |
| Customer relationships | 3,000 | 3,000 |
| Amortization expense of intangible assets | $5,129,000 | $4,226,000 |
Estimated
future amortization expense for the Company’s intangible assets at March 31, 2026 was as follows:
SCHEDULE
OF ESTIMATED FUTURE AMORTIZATION EXPENSE
| | |
| --- | --- |
| Remainder of 2026 | $16,334,000 |
| 2027 | 19,369,000 |
| 2028 | 16,414,000 |
| 2029 | 16,244,000 |
| 2030 | 15,739,000 |
| Thereafter | 96,626,000 |
| Intangible assets | $180,726,000 |
In
January 2026, the Company amended the Asset Purchase Agreement with Eyevance Pharmaceuticals, LLC and License Agreement with Santen S.A.S.
(collectively, the “Santen Agreements”), each a subsidiary of Santen Pharmaceuticals Co., Ltd. (collectively, “Santen”).
Pursuant to the amendment, the parties agreed to a full and final settlement of all contingent milestone obligations related to specified
manufacturing-related events for the Santen products in exchange for a one-time lump sum payment by the Company of $7,000,000. Following
this payment, no further milestone payments will be due under the Santen Agreements. The Company capitalized this payment as an intangible
asset within acquired product rights.
13
In
February 2026, the Company made a one-time upfront payment of $4,000,000 to Samsung Bioepis Co., Ltd. (“Samsung”) upon the
license effective date related to the development and commercialization agreement with Samsung entered into in July 2025. The milestone
was capitalized as an intangible asset within acquired product rights.
In
March 2026, the Company paid a commercial milestone payment of $7,000,000 related to the sales of VEVYE during 2025. The milestone payment
was included in accounts payable and accrued expenses on the December 31, 2025 condensed consolidated balance sheet and was capitalized
in acquired product rights.
There
were no changes to the carrying value of the Company’s goodwill during the three months ended March 31, 2026 and 2025.
### **NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES**
Accounts
payable and accrued expenses at March 31, 2026 and December 31, 2025 consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Accounts payable | $26,125,000 | $35,355,000 |
| Income taxes payable | 2,564,000 | - |
| Accrued interest | 1,222,000 | 6,498,000 |
| Other accrued expenses | 106,000 | 106,000 |
| Total accounts payable and accrued expenses | $30,017,000 | $41,959,000 |
### **NOTE 8. DEBT**
*8.625%
Senior Notes Due 2030*
In
March 2026, the Company entered into the First Supplemental Indenture to the Indenture dated September 12, 2025 pursuant to which
the Company issued $50,000,000 aggregate principal amount of additional 8.625%
Senior Notes due 2030 (the “New Notes”). The New Notes were issued at 100.25%
of par value and resulted in net proceeds to the Company of $48,526,000 after deducting underwriting discounts, commissions and other unpaid offering expenses of $1,474,000.
The New Notes, together with the 8.625%
Senior Notes due 2030 issued in September 2025 (the “Existing Notes”) (together, the “2030 Notes”) are
treated as a single series and have the same terms as the Existing Notes. The issuance costs and premium relating to the 2030 Notes
were deferred and will be recognized to interest expense using the effective-interest method (9.35%)
over the remaining term of the debt.
Interest
expense totaled $5,992,000 for the three months ended March 31, 2026, and included the amortization of debt
issuance costs and premium of $451,000.
A
summary of the Company’s debt at March 31, 2026 and December 31, 2025 is as follows:
SCHEDULE OF LONG TERM DEBT
| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| 8.625% Senior Notes due September 2030 | $300,000,000 | $250,000,000 |
| Less: Unamortized debt issuance costs | (7,913,000) | (6,816,000) |
| Notes payable net | $292,087,000 | $243,184,000 |
14
At
March 31, 2026, future minimum principal payments under the Company’s debt were as follows:
SCHEDULE OF FUTURE MINIMUM PAYMENT UNDER NOTES PAYABLES
| Remainder of 2026 / 2027 / 2028 / 2029 | - |
| --- | --- |
| 2030 | 300,000,000 |
| Total minimum principal payments | 300,000,000 |
| Less: unamortized issue costs and premium | (7,913,000) |
| Notes payable, net | $292,087,000 |
### **NOTE 9. COMMITMENTS AND CONTINGENCIES**
**Legal**
*General
and Other*
In
the ordinary course of business, the Company is involved in various legal proceedings, government investigations and other matters that
are complex in nature and have outcomes that are difficult to predict. See also Part II, Item 1A. Risk Factors*.* The Company describes
legal proceedings and other matters that are/were significant or that it believes could become significant in this footnote.
The
Company records accruals for loss contingencies to the extent that it concludes it is probable that a liability has been incurred and
the amount of the related loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings
and other matters that could cause an increase or decrease in the amount of a liability that has been accrued previously.
The
Company’s legal proceedings involve various aspects of its business and a variety of claims, some of which present novel factual
allegations and/or unique legal theories. Typically, a number of matters pending against the Company are at early stages of the legal
process, which in complex proceedings of the sort the Company face often extend for several years. While it is not possible to accurately
predict or determine the eventual outcomes of matters that have not concluded, an adverse determination in one or more of these matters
(whether discussed in this footnote or not) currently pending may have a material adverse effect on the Company’s consolidated
results of operations, financial position or cash flows. Legal costs incurred for loss contingencies are expensed as incurred.
Certain
recent developments concerning legal proceedings the Company believes are or were material to its business and other matters are discussed
below:
*Ocular
Science, Inc. et. al*
In
July 2021, ImprimisRx, LLC, a subsidiary of the Company, filed a lawsuit against Ocular Science, Inc. and OSRX, Inc. (together, “OSRX”)
in the U.S. District Court for the Southern District of California, asserting claims for copyright infringement, trademark infringement,
unfair competition and false advertising (Lanham Act). Since July 2021, the complaint had been amended and OSRX added counterclaims alleging
ImprimisRx, LLC was violating the Lanham Act with false advertising. The Court granted cross motions for summary judgment on each party’s
Lanham Act claims, thus leaving only ImprimisRx, LLC’s copyright infringement, trademark infringement, and unfair competition claims
for trial. Following a jury trial in November 2024, a jury found OSRX acted with malice, fraud, or oppression, willfully engaging in
trademark infringement and unfair competition under California and federal law, and ImprimisRx, LLC received a $34,900,000 jury verdict
award, which included $20,400,000 in punitive damages and $14,500,000 in actual damages. An amended final judgment was entered on October
1, 2025, which reduced the OSRX liability to $11,249,000, plus post-judgment interest, and required OSRX to cease use of certain trademarks.
In October 2025, OSRX filed an appeal. No collection activity is allowed during the appeal. The Company intends to vigorously pursue
enforcement of its judgment during the appeal process. However, due to uncertainty regarding the probability of collection, the Company
has not recognized any amounts associated with the judgment during the three months ended March 31, 2026.
15
**Product
and Professional Liability**
Product
and professional liability litigation represents an inherent risk to all firms in the pharmaceutical and pharmacy industry. The Company
utilizes traditional third-party insurance policies with regard to our product and professional liability claims. Such insurance coverage
at any given time reflects current market conditions, including cost and availability, when the policy is written.
**Indemnities**
In
addition to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate
indemnification agreements with each of the Company’s directors and officers. These agreements require the Company, among other
things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines
and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status
or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the
individual with respect to which the individual may be entitled to indemnification by the Company. Several of the Company’s asset
purchase and license agreements contain customary representations, warranties, covenants and confidentiality provisions, and also contain
mutual indemnification obligations related primarily to performance under the respective agreements. The Company also indemnifies its
lessors in connection with its facility leases for certain claims arising from the use of the facilities. These indemnities do not provide
for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not
incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying
condensed consolidated balance sheets.
**Asset
Purchase, License and Related Agreements**
*FDA
Approved Product Acquisitions*
In
recent years, the Company has acquired commercial and product rights to various FDA-approved ophthalmic medications and products through
asset purchase, licenses, supply and/or other related agreements. In general, in exchange for product and commercial rights these agreements
provide the counterparties with certain upfront and contingent milestone payments typically related to certain annual sales amounts and
manufacturing events, and in certain cases, per unit transfer prices and royalties on sales of some of the products.
During
the three months ended March 31, 2026 and 2025, $2,377,000 and $2,173,000, respectively, were incurred under these agreements as royalty
expenses. During the three months ended March 31, 2026 and 2025, $11,000,000 and $0, respectively, were incurred under these agreements
related to upfront and milestone payments under these agreements. As of March 31, 2026, the remaining contingent considerations payable
pursuant to these agreements were not considered probable as the contingency is not resolved and therefore, no amount was accrued related
to these contingent considerations during the three months ended March 31, 2026.
**Contract
Manufacturing**
The
Company has entered into manufacturing agreements with respect to third-party contract manufacturers for its FDA-approved pharmaceutical
products. Some of these contract manufacturing agreements require minimum annual order amounts. The Company has committed to pay approximately
$10,723,000 related to contract manufacturing agreements for the year ending December 31, 2026.
### **NOTE 10. SEGMENTS AND CONCENTRATIONS**
The
chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM does not review segment assets when assessing
segment performance and deciding how to allocate resources. The Company reports on two reportable segments which are generally determined
based on the decision-making structure of the Company and the grouping of similar products and services: Branded and Compounding.
- The ***Branded*** segment includes activities of the Company’s FDA-approved ophthalmology pharmaceutical products, including the out-licensing of rights to certain of our branded products.
- The ***Compounding*** segment represents activities in the Company’s ophthalmology-focused pharmaceutical compounding business.
16
The
CODM evaluates segment performance and makes resource-allocation decisions primarily on the basis of segment contribution. Segment contribution
is the internal measure of profitability that the CODM reviews on a regular basis to assess the operational performance of each segment,
determine the appropriate level of sales and marketing investments, evaluate pricing decisions, and prioritize capital deployment among
branded product initiatives and the compounding operations.
Segment
contribution for the segments represents net revenues less cost of sales, certain general and administrative expenses, selling and marketing
expenses, and research and development expenses. The Company does not evaluate the following items at the segment level:
- Selling, general and administrative expenses that result from shared infrastructure, including certain expenses associated with legal matters, public company costs (e.g. investor relations), Board of Directors and principal executive officers and other similar shared expenses.
- Operating expenses within selling, general and administrative expenses that result from the impact of corporate initiatives. Corporate initiatives primarily include integration, restructuring, acquisition and other shared costs.
- Other select revenues and operating expenses including research and development expenses, amortization, and asset sales and impairments, net as not all such information has been accounted for at the segment level, or such information has not been used by all segments.
Segment
net revenues, segment operating expenses and segment contribution information consisted of the following:
SCHEDULE
OF SEGMENT NET REVENUES
_Three Months Ended March 31, 2026_
| Line item | Branded | Compounding | Consolidated |
| --- | --- | --- | --- |
| Product sales, net | $30,631,000 | $13,499,000 | $44,130,000 |
| Other revenues | 73,000 | - | 73,000 |
| Total revenues | 30,704,000 | 13,499,000 | 44,203,000 |
| Cost of sales | 10,954,000 | 6,204,000 | 17,158,000 |
| Gross profit | 19,750,000 | 7,295,000 | 27,045,000 |
| Operating expenses | | | |
| Selling, general and administrative | 25,759,000 | 6,742,000 | 32,501,000 |
| Research and development | 5,621,000 | 210,000 | 5,831,000 |
| Segment contribution | $(11,630,000) | $343,000 | (11,287,000) |
| Corporate | - | - | 10,729,000 |
| Research and development | | | 64,000 |
| Loss from operations | | | $(22,080,000) |
17
_Three Months Ended March 31, 2025_
| Line item | Branded | Compounding | Consolidated |
| --- | --- | --- | --- |
| Product sales, net | $27,694,000 | $20,051,000 | $47,745,000 |
| Other revenues | 86,000 | - | 86,000 |
| Total revenues | 27,780,000 | 20,051,000 | 47,831,000 |
| Cost of sales | 8,181,000 | 7,343,000 | 15,524,000 |
| Gross profit | 19,599,000 | 12,708,000 | 32,307,000 |
| Operating expenses | | | |
| Selling, general and administrative | 20,682,000 | 7,522,000 | 28,204,000 |
| Research and development | 1,993,000 | 224,000 | 2,217,000 |
| Segment contribution | $(3,076,000) | $4,962,000 | 1,886,000 |
| Corporate | - | - | 12,309,000 |
| Research and development | | | 809,000 |
| Loss from operations | | | $(11,232,000) |
Substantially
all revenue is attributable to the U.S. All long-lived assets at March 31, 2026 and December 31, 2025 were located in the U.S.
Revenues
by segment are further described as follows:
SCHEDULE
OF REVENUES BY SEGMENT
| Line item | For the Three Months Ended March 31, 2026 | For the Three Months Ended March 31, 2025 |
| --- | --- | --- |
| IHEEZO | $1,851,000 | $5,222,000 |
| VEVYE | 20,947,000 | 21,516,000 |
| Other branded products | 7,833,000 | 956,000 |
| Other revenues | 73,000 | 86,000 |
| Branded revenue, net | 30,704,000 | 27,780,000 |
| Compounding revenue, net | 13,499,000 | 20,051,000 |
| Total revenues, net | $44,203,000 | $47,831,000 |
Other
than IHEEZO for the three months ended March 31, 2025 and VEVYE, no other products accounted for more than 10% of total revenues for
the periods presented.
*Customer
and Supplier Concentrations*
Substantially
all of the Company’s Branded sales are made to third-party distributors who sell the products to pharmacies and to the end-users.
There were two customers who comprised more than 10% of the Company’s Branded revenues for the three months ended March 31, 2026
and one customer who comprised more than 10% of the Company’s Branded revenues for the three months ended March 31, 2025. There
were no customers who comprised more than 10% of Compounding revenues for either the three months ended March 31, 2026 or 2025. As of
March 31, 2026, accounts receivable from three customers accounted for 95% of total consolidated accounts receivable. As of December
31, 2025, accounts receivable from two customers accounted for 90% of total consolidated accounts receivable.
The
Company received its active pharmaceutical ingredients from three main suppliers during each of the three months ended March 31, 2026
and 2025. These suppliers collectively accounted for 69% and 67% of manufacturing supplies purchases during the three months ended March
31, 2026 and 2025, respectively.
18
**Item
2. 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 our unaudited
condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report on Form
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 GAAP.*
*The
information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment
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 year ended December 31, 2025 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.”*
*In
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 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
to: 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, 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 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 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.*
**Overview**
We
are a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical
products for the U.S. market. We help 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.
19
**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**
The
following 2026 activity is important to understanding 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.
*8.625%
Senior Notes Due 2030*
In
March 2026, we entered into the First Supplemental Indenture to the Indenture dated September 12, 2025 pursuant to which we issued
$50,000,000 aggregate principal amount of additional 8.625% Senior Notes due 2030 (the “New Notes”). The New Notes were
issued at 100.25% of par value and resulted in net proceeds to us of $48,526,000 after deducting underwriting discounts, commissions
and other unpaid offering expenses of $1,474,000. The New Notes, together with the 8.625% Senior Notes due 2030 issued in September
2025 (the “Existing Notes”) (together, the “2030 Notes”) are treated as a single series and have the same
terms as the Existing Notes. The issuance costs and premium relating to the New Notes were deferred and will be recognized to
interest expense using the effective-interest method over the remaining term of the debt.
**Results
of Operations**
The
following period-to-period comparisons of our financial results for the three months ended March 31, 2026 and 2025 are not necessarily
indicative of results for any future period.
*Revenues*
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. Revenues are recognized net of estimates for variable consideration, including government rebates, commercial rebates,
chargebacks, wholesaler and distribution service fees, returns, patient assistance programs and other revenue deductions, and these estimates
may be affected by delayed or incomplete claims data, channel inventory, product utilization, payor mix, labeler-code or product attribution,
government program requirements, contractual interpretation, and disputed or reconciled deductions. From time to time, we receive claims,
invoices or deductions from government agencies, wholesalers, distributors, customers, former product owners or other third parties that
we believe are unsupported, overstated, duplicative, attributable to another party or product, or otherwise inconsistent with applicable
requirements, and if our estimates differ from actual results or disputed amounts are resolved adversely to us, we may be required to
record adjustments to net revenues, gross margin, operating income, cash flows or related balance sheet accounts in future periods.
20
The
following presents our revenues for the three months ended March 31, 2026 and 2025:
| Line item | For the Three Months Ended March 31, 2026 | For the Three Months Ended March 31, 2025 | Variance |
| --- | --- | --- | --- |
| IHEEZO | $1,851,000 | $5,222,000 | $(3,371,000) |
| VEVYE | 20,947,000 | 21,516,000 | (569,000) |
| Other branded products | 7,833,000 | 956,000 | 6,877,000 |
| Other revenue, net | 73,000 | 86,000 | (13,000) |
| Branded revenue, net | 30,704,000 | 27,780,000 | 2,924,000 |
| Compounding revenue, net | 13,499,000 | 20,051,000 | (6,552,000) |
| Total revenues, net | $44,203,000 | $47,831,000 | $(3,628,000) |
The
increase in Branded revenues from product sales was primarily related to a change in our customer mix, offset by a decrease in IHEEZO
volume. The decrease in compounding revenue was primarily due to a decrease in volume and the discontinuation of sales of our Klarity-C
compounded formulation which occurred during the second quarter of 2025. Our revenue for VEVYE decreased slightly from the three
months ended March 31, 2025 as we recognized an increase in the gross-to-net revenue deductions associated with our recent coverage wins
and our cash pay program.
*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 rights, and other related expenses.
Branded
| Line item | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | Three Months Ended March 31, / $ Variance |
| --- | --- | --- | --- |
| Cost of sales | $10,954,000 | $8,181,000 | $2,773,000 |
| Gross profit | $19,750,000 | $19,599,000 | $151,000 |
| Gross margin | 64.3% | 70.6% | (6.3 |
The
increase in Branded cost of sales was primarily attributable to an increase in units sold during the three months ended March 31, 2026
compared to the prior year period and an increase in our fixed expenses. The decrease in the gross margin as a percent of revenue was
primarily due to a decrease in sales of products that have a higher gross margin profile and an increase in gross-to-net revenue deductions associated with VEVYE as a result of our recent coverage wins and our cash pay program
which reduced the gross margin profile for the product.
Compounding
| Line item | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | Three Months Ended March 31, / $ Variance |
| --- | --- | --- | --- |
| Cost of sales | $6,204,000 | $7,343,000 | $(1,139,000) |
| Gross profit | $7,295,000 | $12,708,000 | $(5,413,000) |
| Gross margin | 54.0% | 63.4% | (9.4 |
The
decrease in Compounding costs of sales between the three months ended March 31, 2026 and 2025 was primarily attributable to a decrease
in units sold. The decrease in the gross margin as a percent of revenue was largely due to a decrease in the utilization of our compounding
facility during the three months ended March 31, 2026 compared to the same period in 2025.
*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.
21
The
following presents our selling, general and administrative expenses for the three months ended March 31, 2026 and 2025:
| Line item | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | Three Months Ended March 31, / $ Variance |
| --- | --- | --- | --- |
| Selling, general and administrative | $43,230,000 | $40,513,000 | $2,717,000 |
The
increase in selling, general and administrative expenses between periods was primarily due to an increase in personnel costs of $3,800,000
as we increased our headcount in sales, marketing and other departments to support current and expected growth partially offset by a
decrease in stock-based compensation of $721,000 primarily due to market-based performance awards recognized in the three months ended
March 31, 2025.
*Research
and Development Expenses*
Our
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,
acquired in-process R&D and other costs related to the clinical development of our assets.
The
following presents our research and development expenses for the three months ended March 31, 2026 and 2025:
| Line item | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | Three Months Ended March 31, / $ Variance |
| --- | --- | --- | --- |
| Research and development | $5,895,000 | $3,026,000 | $2,869,000 |
The
increase in R&D expenses of $2,869,000 in the three months ended March 31, 2026 as compared to the same period in 2025 was primarily
due to clinical trials associated with the Melt Pharmaceuticals, Inc. drug candidate we acquired in November 2025.
*Interest
Expense, Net*
Interest
expense, net was $5,497,000 for the three months ended March 31, 2026, compared to $6,548,000 for the same period in 2025. The decrease
of $1,051,000 was primarily due to a lower effective interest rate during the three months ended March 31, 2026 compared to the same
period in 2025.
**Liquidity
and Capital Resources**
***Liquidity***
Our
cash on hand at March 31, 2026 was $94,644,000 compared to $72,927,000 at December 31, 2025.
We
believe that cash and cash equivalents of $94,644,000 at March 31, 2026 will be sufficient to sustain our planned level of operations
and capital expenditures for at least the next 12 months. We may consider the sale of certain assets including, but not limited to, part
of, or all of, our investments 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.
22
*Net
Cash Flow*
The
following provides detailed information about our net cash flows for the three months ended March 31, 2026 and 2025:
| Line item | For the Three Months Ended March 31, 2026 | For the Three Months Ended March 31, 2025 |
| --- | --- | --- |
| Net cash provided by (used in): | | |
| Operating activities | $(8,992,000) | $19,668,000 |
| Investing activities | (18,203,000) | (212,000) |
| Financing activities | 48,912,000 | 23,000 |
| Net change in cash and cash equivalents | 21,717,000 | 19,479,000 |
| Cash and cash equivalents at beginning of the period | 72,927,000 | 47,247,000 |
| Cash and cash equivalents at end of the period | $94,644,000 | $66,726,000 |
*Operating
Activities*
Net
cash used in operating activities during the three months ended March 31, 2026 was $8,992,000 compared to net cash provided by operating
activities of $19,668,000 during the same period in the prior year. The variance was primarily due to an increase in our net loss of
$9,822,000. Additionally, we collected $39,196,000 in accounts receivable during the three months ended March 31, 2025 due to increased
collection efforts.
*Investing
Activities*
Net
cash used in investing activities during the three months ended March 31, 2026 was $18,203,000 compared to $212,000 during the same period
in the prior year. Cash used in investing activities in 2026 was primarily related to investments in our acquired product rights.
*Financing
Activities*
Net
cash provided by financing activities during the three months ended March 31, 2026 and 2025 was $48,912,000 and $23,000, respectively.
We completed the sale of $50,000,000 in principal amount of 2030 Notes during the three months ended March 31, 2026.
***Sources
of Capital***
During
the three months ended March 31, 2026, our principal source of cash was from our financing 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 some or all of our ownership interests in our consolidated subsidiaries.
In
September 2025, we refinanced our long-term debt and entered into a revolving line of credit with Fifth Third Bank. The line of credit
provides for an initial amount of $40,000,000 with an additional uncommitted amount of up to $20,000,000. The line of credit will mature
in September 2030, or, if earlier, the date that is 91 days prior to the earliest maturity of our 2030 Notes. As of March 31, 2026, we
have not drawn down on the line of credit.
23
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 entirely.
Credit
Ratings
As
of March 26, 2026, Moody’s Investors Service affirmed a Long-Term Corporate Family Rating of B3 to Harrow, Inc. and affirmed a
Stable outlook. As of March 26, 2026, Fitch Ratings affirmed a Long-Term Issuer Default Rating of B- (Outlook Stable) to Harrow, Inc.,
and a rating of B to our senior unsecured notes due September 2030 with a Recovery Rating of RR3. Credit ratings are subject to revision
or withdrawal at any time by the issuing agencies and should not be construed as a recommendation to purchase, hold or sell securities
or as a guarantee of our future performance. To the best of our knowledge, there have been no further changes to these ratings as of
the date of this filing. Any downgrade in our corporate or senior unsecured debt rating may increase our cost of borrowing and may negatively
impact our ability to raise additional debt capital.
**Recently
Issued and Adopted Accounting Pronouncements**
See
Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
**Item
3. Quantitative and Qualitative Disclosures About Market Risk**
Market
risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. Our exposure to market risk
is limited and relates primarily to interest rate risk on our cash and cash equivalents and the fair value of our outstanding fixed-rate
indebtedness.
**Interest
Rate Risk**
As
of March 31, 2026, all of our outstanding indebtedness bears interest at fixed rates. Accordingly, changes in market interest rates do
not affect our contractual cash interest obligations or debt service requirements. However, changes in interest rates may affect the
fair value of our fixed-rate debt. Based on our outstanding fixed-rate indebtedness as of March 31, 2026, a hypothetical 100 basis point
movement in market interest rates would change the estimated fair value of such debt by approximately $3.0 million. These estimated changes
would not impact our condensed consolidated statements of operations or cash flows unless the debt is refinanced, repurchased, or otherwise
settled prior to maturity.
24
Our
cash and cash equivalents consist primarily of demand deposits and other highly liquid instruments with short-term maturities. As a result,
interest income earned on these balances may fluctuate with changes in short-term interest rates. We do not believe that reasonably likely
changes in interest rates would have a material effect on our consolidated financial position, results of operations, or cash flows.
We
do not use derivative financial instruments, including interest rate swaps, to manage interest rate risk.
**Foreign
Currency and Other Market Risks**
We
do not have material exposure to foreign currency exchange rate risk, commodity price risk, or other market risks.
**Item
4. Controls and Procedures**
***Evaluation
of Disclosure Controls and Procedures***
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed
or submitted pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated
to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions
regarding required disclosure.
Under
the supervision and with the participation of our principal executive officer and principal financial officer, our management conducted
an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange
Act, as they existed on March 31, 2026. Based on this evaluation, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures were effective to achieve their stated purpose as of March 31, 2026, the end of
the period covered by this Quarterly Report.
***Changes
in Internal Control over Financial Reporting***
There
has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the
quarter ended March 31, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
25
**PART
II**
**OTHER
INFORMATION**
**Item
1. Legal Proceedings**
See
Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for information on various legal
proceedings, which is incorporated into this Item by reference.
**Item
1A. Risk Factors**
*In
addition to the other information contained in this Quarterly Report you should consider the risk factors and the other information in
our Annual Report on Form 10-K for the year ended December 31, 2025, including our audited financial statements and the related notes
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any such risks actually
occur, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely
affected. In these circumstances, the market price of our common stock would likely decline and you may lose all or part of your investment.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.*
Below
we provide, in supplemental form, material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2025. Except as set forth below, there have been no material changes to the risk factors previously
disclosed in our Annual Report on Form 10-K, which are incorporated herein by reference.
The
following risk factor amends and restates in its entirety the risk factor titled “Our sales depend on coverage and reimbursement
from government and commercial third-party payors, and pricing and reimbursement pressures have affected, and are likely to continue
to affect, our profitability” included in our Annual Report on Form 10-K for the year ended December 31, 2025.
***Our
sales depend on coverage and reimbursement from government and commercial third-party payors, and pricing and reimbursement pressures
have affected, and are likely to continue to affect, our profitability.***
Sales
of our products depend on the availability and extent of coverage and reimbursement from third-party payors, including government healthcare
programs and private insurance plans. Payors continue to implement measures to manage utilization and contain costs, including step edits,
prior authorization, formulary restrictions, increased patient cost sharing, and reimbursement rate reductions. These actions may reduce
the number of patients for whom our products are reimbursed, delay or restrict patient access, and limit our ability to increase prices
or maintain pricing levels, any of which could adversely affect our revenues and profitability.
In
the United States, legislative and regulatory actions continue to focus on reducing drug costs, including measures affecting Medicare
reimbursement and manufacturer financial obligations. In addition, policymakers and CMS have advanced proposals that would reference
prices in other economically comparable countries in determining Medicare beneficiary cost-sharing and/or additional manufacturer rebate
obligations, sometimes described as “most-favored-nation” or international reference pricing policies. CMS has proposed mandatory
demonstration models, including GLOBE for Medicare Part B and GUARD for Medicare Part D, that would assess additional manufacturer rebates
based on international benchmarks for certain therapeutic categories that include ophthalmology or ophthalmic agents. Because certain
of our ophthalmic products are reimbursed under Medicare Part B, and we may develop or acquire additional products reimbursed by government
programs, these and similar initiatives could be particularly relevant to our business. Moreover, because we do not own global rights
to many of the products we market in the United States and generally do not control commercialization or pricing outside the United States
for those products, we may have limited or no ability to affect non-U.S. pricing that could be used as a benchmark under most-favored-nation
or international reference pricing initiatives, which could increase our exposure to such policies.
26
Our
reported revenues also depend on significant estimates of variable consideration, including estimates for government rebates, commercial
rebates, chargebacks, wholesaler fees, distribution service fees, returns, administrative fees, patient assistance programs, and other
gross-to-net revenue deductions. These estimates require judgment and are based on available information regarding contractual terms,
channel inventory, product utilization, payor mix, wholesaler and distributor data, government program requirements, and historical and
expected claims activity. Actual deductions may differ from our estimates, and we may be required to adjust revenues in future periods
as new information becomes available or as claims are submitted, reconciled, disputed, validated, settled, or otherwise resolved.
From
time to time, we may receive rebate claims, chargebacks, fee-for-service deductions, invoices, or other claims from government agencies,
wholesalers, distributors, customers, former product owners, or other third parties that we believe are unsupported, overstated, duplicative,
attributable to another party or product, or otherwise inconsistent with applicable contracts, statutes, regulations, or program requirements.
The resolution of these matters may require significant management judgment, data reconciliation, legal analysis, and interaction with
third parties, and may involve uncertainty regarding matters such as product attribution, labeler codes, utilization data, 340B exclusions,
Medicaid and Medicare program rules, wholesaler deduction timing, and other assumptions. If our estimates are inaccurate, if disputed
amounts are ultimately resolved adversely to us, or if we are unable to obtain credits, offsets, refunds, recoupments, or other recoveries
for amounts we believe were improperly claimed or deducted, our revenues, gross margins, cash flows, financial condition, and results
of operations could be adversely affected.
We
cannot predict the scope, timing, or ultimate impact of these or other policy, payor, reimbursement, pricing, or gross-to-net developments.
If such developments decrease coverage or reimbursement, increase rebates or other price concessions, limit utilization, or result in
revenue adjustments that differ materially from our estimates, our business, financial condition, results of operations, and cash flows
could be materially adversely affected.
**Item
2. Unregistered Sales of Equity Securities and Use of Proceeds**
**Recent
Sales of Unregistered Securities**
None.
**Issuer
Purchases of Equity Securities**
During
the three months ended March 31, 2026, we did not repurchase any shares of common stock as part of a publicly announced repurchase program
or otherwise.
**Dividends**
We
have not paid any dividends on our common stock since our inception and do not expect to pay dividends on our common stock in the foreseeable
future.
**Item
3. Defaults Upon Senior Securities**
Not
applicable.
**Item
4. Mine Safety Disclosures**
Not
applicable.
**Item
5. Other Information**
From
time to time, certain of our executive officers and directors may enter into, amend or terminate written trading arrangements pursuant
to Rule 10b5-1 of the Exchange Act or otherwise. During the three months ended March 31, 2026, none of our directors or officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation
S-K).
27
**Item
6. Exhibits**
| Exhibit Number | Description |
| --- | --- |
| 3.1 | Amended and Restated Certificate of Incorporation, as amended (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on September 29, 2023). |
| 3.2 | Amended and Restated Bylaws of the Company, dated as of August 21, 2025 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on August 25, 2025). |
| 4.1 | First Supplemental Indenture, dated as of March 27, 2026, by and between the Company, the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 27, 2026). |
| 4.2 | Form of 8.625% Senior Note due 2030 (included in Exhibit 4.1) (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 27, 2026). |
| 10.1 | Offer Letter dated January 30, 2026 by and between the Company and Patrick W. Sullivan (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on February 2, 2026). |
| 10.2 | Consulting Agreement dated March 1, 2026 between Harrow, Inc. and John P. Saharek (incorporated herein by reference to Exhibit 10.30 to the Annual Report on Form 10-K for the year ended December 31, 2025 of Harrow, Inc. filed with the Securities and Exchange Commission on March 2, 2026). |
| 10.3 | Purchase Agreement, dated March 24, 2026, by and among the Company, the guarantors named therein and BTIG, LLC, as representative of the several initial purchasers named therein (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Harrow, Inc. filed with the Securities and Exchange Commission on March 27, 2026). |
| 31.1* | Certification of Mark L. Baum, principal executive officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. |
| 31.2* | Certification of Andrew R. Boll, principal financial officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. |
| 32.1** | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Mark L. Baum, principal executive officer, and Andrew R. Boll, principal financial officer. |
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, has been formatted in Inline XBRL. |
\* Filed herewith.
\*\* Furnished herewith.
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**SIGNATURES**
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
**Harrow, Inc.**
Dated: May 11, 2026 By: */s/ Mark L. Baum*
Mark L. Baum
Chief Executive Officer and Director
(Principal Executive Officer)
By: */s/ Andrew R. Boll*
Andrew R. Boll
President and Chief Financial Officer (Principal Financial Officer)
By: */s/ Randall E. Pollard*
Randall E. Pollard
Chief Accounting Officer (Principal Accounting Officer)
29