SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Risks, Uncertainties and Liquidity

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

Segments

Segments

Due to shifts in the Company’s strategic plans to further focus on growing the Company’s ImprimisRx business and suspension of activities related to starting up development-stage pharmaceutical companies, along with changes to the Company’s organizational and internal reporting structure, beginning in January 2022 management no longer evaluates the Company’s business in two segments and instead focuses on the performance of the business as a single operating business.

Basic and Diluted Net Loss per Common Share

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”) and warrants, outstanding during the period. Common equivalent shares (using the treasury stock method) from stock options, unvested RSUs and warrants were 5,646,672 and 4,121,398 at June 30, 2022 and 2021, respectively. 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 resigns. The number of shares underlying vested RSUs at June 30, 2022 and 2021 was 287,049 and 235,973, respectively.

The following table shows the computation of basic net loss per share of common stock for the three and six months ended June 30, 2022 and 2021:

	For the						For the
	Three Months Ended						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Numerator – net loss attributable to common stockholders	$	(6,239,000	)	$	(2,950,000	)	$	(8,677,000	)	$	(2,733,000	)
Denominator – weighted average
number of shares outstanding, basic and diluted		27,303,458			26,736,970			27,265,350			26,379,943
Net loss per share of common stock, basic and diluted	$	(0.23	)	$	(0.11	)	$	(0.32	)	$	(0.10	)

Investment in Eton Pharmaceuticals, Inc

Investment in Eton Pharmaceuticals, Inc.

As of June 30, 2022, the Company owned 1,982,000 shares of Eton common stock, which represents less than 10% of the equity interests of Eton. At June 30, 2022, the fair market value of Eton’s common stock was $2.62 per share. In accordance with the Accounting Standards Update (“ASU”) 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, the Company recorded an unrealized investment loss from its Eton common stock position of $3,449,000 and $3,310,000, and $3,584,000 and $6,419,000 during the three and six months ended June 30, 2022 and 2021, respectively, related to the change in fair market value of its investment in Eton during the measurement period. As of June 30, 2022, the fair market value of the Company’s investment in Eton was $5,193,000.

Investment in Melt Pharmaceuticals, Inc. – Related Party

Investment in Melt Pharmaceuticals, Inc. – Related Party

The Company owns 3,500,000 shares of common stock of Melt (representing approximately 46% of the equity interests as of June 30, 2022) of Melt. The Company analyzes its investment in Melt and related agreements on a regular basis to evaluate its position of variable interests in Melt. The Company has determined that it does not have the ability to control Melt, however it has the ability to exercise significant influence over the operating and financial decisions of Melt and uses the equity method of accounting for this investment. Under this method, the Company recognizes earnings and losses in Melt in its condensed consolidated financial statements and adjusts the carrying amount of its investment in Melt accordingly. Any intra-entity profits and losses are eliminated. During the year ended December 31, 2021, the Company reduced the carrying value of its common stock investment in Melt to $0 as a result of the Company recording its share of equity losses in Melt since its deconsolidation in 2019. As of June 30, 2022 and at the time of entering into the Melt Loan Agreement (see Note 4), the Company owned 100% of Melt’s indebtedness. Following the reduction of the carrying value of the Company’s common stock investment in Melt to $0, the Company began recording 100% of the equity method losses of Melt, based on its ownership of Melt’s total indebtedness. In addition, the Company treats interest paid in kind on the Melt Loan Agreement as an in-substance capital contribution and reduces its investment in Melt accordingly, rather than recording interest income. The Company has no other requirements to advance funds to Melt.

The following table summarizes the Company’s investments in Melt as of June 30, 2022:

			Share of Equity Method			Paid-in -Kind		In-substance Capital			Net
	Cost Basis		Losses			Interest		Contributions			Carrying value
Common stock	$	5,810,000	$	(5,810,000	)	$	-	$	-		$		-
Loan		13,500,000		(7,899,000	)		1,484,000		(1,484,000	)		5,601,000
	$	19,310,000	$	(13,709,000	)	$	1,484,000	$	(1,484,000	)	$	5,601,000

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

Investment in Surface Ophthalmics, Inc. – Related Party

Investment in Surface Ophthalmics, Inc. – Related Party

The Company owns 3,500,000 common shares of Surface (representing approximately 20% of Surface’s equity interests following the closing of a round of financing completed by Surface in July 2021) of Surface and uses the equity method of accounting for this investment, as management has determined that the Company has the ability to exercise significant influence over the operating and financial decisions of Surface. Under this method, the Company recognizes earnings and losses in Surface in its consolidated financial statements and adjusts the carrying amount of its investment in Surface accordingly. The Company’s share of earnings and losses are based on the Company’s ownership interest of Surface. Any intra-entity profits and losses are eliminated. During the year ended December 31, 2021, the Company reduced its common stock investment in Surface to $0 as a result of the Company recording its share of equity losses of Surface. The Company has no other investments in Surface.

The following table summarizes the Company’s investment in Surface as of June 30, 2022:

	Cost		Share of Equity			Net
	Basis		Method Losses			Carrying value
Common stock	$	5,320,000	$	(5,320,000	)	$	-

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

Impairment of Equity Method Investments and Note Receivable

Impairment of Equity Method Investments and Note Receivable

On a quarterly basis, management assesses whether there are any indicators that the carrying value of the Company’s equity method investments and note receivable may be other than temporarily impaired. Indicators include financial condition, operating performance, and near-term prospects of the investee. To the extent indicators suggest that a loss in value may have occurred, the Company will evaluate both quantitative and qualitative factors to determine if the loss in value is other than temporary. If a potential loss in value is determined to be other than temporary, the Company will recognize an impairment loss based on the estimated fair value of the equity method investments and note receivable. At June 30, 2022 and December 31, 2021, no indicators of impairment existed.