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Summary of Significant Accounting Policies (Policies) | 3 Months Ended
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Mar. 31, 2019
Accounting Policies [Abstract] |
Liquidity | Liquidity The Company has incurred significant operating losses and negative cash flows from operations since its inception. The Company incurred operating losses of $556 and $1,781 for the three months ended March 31, 2019 and 2018, respectively, and had an accumulated deficit of $62,853 and $74,211 as of March 31, 2019 and December 31, 2018, respectively. In addition, the Company used cash in operating activities of $1,476 and $965 for the three months ended March 31, 2019 and 2018, respectively. While there is no assurance, the Company believes its existing cash resources and restricted cash of $4,265 at March 31, 2019, will be sufficient to sustain the Company’s planned level of operations for at least the next twelve months. However, estimates of operating expenses and working capital requirements could be incorrect, and the Company could use its cash resources faster than anticipated. Further, some or all of the ongoing or planned activities may not be successful and could result in further losses. The Company may seek to increase liquidity and capital resources by one or more of the following which may include, but are not limited to: the sale of assets and/or businesses, obtaining financing through the issuance of equity, debt, or convertible securities; and working to increase revenue growth through sales. There is no guarantee that the Company will be able to obtain capital when needed on terms it deems as acceptable, or at all.
Segments | Segments The Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on as operating segments. The Company has identified two operating segments as reportable segments. See Note 15 for more information regarding the Company’s reportable segments.
Noncontrolling Interests | Noncontrolling Interests The Company recognizes any noncontrolling interest as a separate line item in equity in the condensed consolidated financial statements. A noncontrolling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to the Company. Generally, any interest that holds less than 50% of the outstanding voting shares is deemed to be a noncontrolling interest; however, there are other factors, such as decision-making rights, that are considered as well. The Company includes the amount of net income (loss) attributable to noncontrolling interests in consolidated net income (loss) on the face of the condensed consolidated statements of operations. The Company provides in the condensed consolidated statements of stockholders’ equity a reconciliation at the beginning and the end of the period of the carrying amount of total equity, equity attributable to the parent, and equity attributable to the noncontrolling interest that separately discloses:
(1) | Net income or loss;
(2) | transactions with owners acting in their capacity as owners, showing separately contributions from and distributions to owners; and
(3) | each component of other income or loss.
Basic and Diluted Net Income (Loss) Per Common Share | Basic and Diluted Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing income (loss) attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed by dividing the income (loss) attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options and warrants, outstanding during the period. Basic and diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Common stock equivalents (using the treasury stock or “if converted” method) from deferred acquisition obligations, convertible note payable, stock options, unvested restricted stock units (“RSUs”) and warrants were 5,838,230 and 10,106,391 at March 31, 2019 and 2018, respectively, and, except for the three months ended March 31, 2019, are excluded from the calculation of diluted net (loss) per share for the periods presented, because the effect is anti-dilutive. Included in the basic and diluted net income (loss) per share calculation were RSUs awarded to directors that had vested, but the issuance and delivery of the shares are deferred until the director resigns. The number of shares underlying vested RSUs at March 31, 2019 and 2018 was 270,783 and 152,790, respectively. The following table shows the computation of basic net income (loss) per share of common stock for the three March 31, 2019 and 2018:
|  | For the |  |  | For the |
|  | Three Months Ended |  |  | Three Months Ended |
|  | March 31, 2019 |  |  | March 31, 2018 |
Numerator – net income (loss) attributable to Harrow Health, Inc. |  | $ | 11,358 |  |  | $ | (3,513 | )
Denominator – weighted average number of shares outstanding, basic |  |  | 24,841,386 |  |  |  | 20,949,199 |
Net income (loss) per share, basic |  | $ | 0.46 |  |  | $ | (0.17 | )
For three months ended March 31, 2019, the Company had net income. As a result, the Company computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during those periods. Diluted common equivalent shares for the three months ended March 31, 2019, consisted of the following:
|  | March 31, 2019 |
Diluted shares related to: |  |  |  |
Warrants |  |  | 1,067,808 |
Stock options |  |  | 680,501 |
Dilutive common equivalent shares |  |  | 1,748,309 |
The following table shows the computation of diluted net income (loss) per share of common stock for the three months ended March 31, 2019 and 2018:
|  | For the |  |  | For the |
|  | Three Months Ended |  |  | Three Months Ended |
|  | March 31, 2019 |  |  | March 31, 2018 |
Numerator – net income (loss) attributable to Harrow Health. Inc. |  | $ | 11,358 |  |  | $ | (3,513 | )
Denominator – weighted average number of shares outstanding, basic |  |  | 24,841,386 |  |  |  | 20,949,199 |
Dilutive common equivalent shares |  |  | 1,748,309 |  |  |  | - |
Number of shares used for diluted earnings per share computation |  |  | 26,589,695 |  |  |  | 20,949,199 |
Net income (loss) per share, diluted |  | $ | 0.43 |  |  | $ | (0.17 | )
Investment in Eton Pharmaceuticals, Inc. - Related Party | Investment in Eton Pharmaceuticals, Inc. – Related Party The Company owns 3,500,000 shares of Eton common stock, which represents approximately 19.86% of the equity and voting interests of Eton as of March 31, 2019. At March 31, 2019, the fair market value of Eton’s common stock was $8.00 per share, the closing share price of Eton common stock on March 29, 2019, the last trading day of the period ended March 31, 2019. 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, for the three months ended March 31, 2019, the Company recorded an investment gain from its Eton common stock position of $6,580, related to the change in fair market value of the Company’s investment in Eton during the measurement period. As of March 31, 2019, the fair market value of the Company’s investment in Eton was $28,000. In November 2018, the Company entered into a lock-up agreement, that prohibits the sale of any of its Eton common stock until November 2019, without the approval of National Securities Corporation. Mark Baum, the Company’s Chief Executive Officer, is a member of the board of directors of Eton.
Investment in Melt Pharmaceuticals, Inc. - Related Party | Investment in Melt Pharmaceuticals, Inc. – Related Party In April 2018, the Company formed Melt as a wholly owned subsidiary. In January and March of 2019, Melt entered into definitive stock purchase agreements (the “Melt Series A Preferred Stock Agreement”) with certain investors and closed on the purchase and sale of Melt’s Series A Preferred Stock (the “Melt Series A Stock”), totaling approximately $11,400 of proceeds (collectively the “Melt Series A Round”) at a purchase price of $5.00 per share. As a result, the Company lost voting and ownership control of Melt and ceased consolidating Melt’s financial statements. In connection with the Melt Series A Preferred Stock Agreement, Melt also entered into a Registration Rights Agreement and agreed to use commercially reasonable efforts to file, or confidentially submit, a registration statement on Form S-1 with the United States Securities and Exchange Commission by September 30, 2020 relating to an initial public offering of its common stock. At the time of deconsolidation, the Company recorded a gain of $5,810 and adjusted the carrying value in Melt to reflect the increased valuation of Melt and the Company’s new ownership interest in accordance with Accounting Standard Codification (“ASC”) 810-10-40-4(c), Consolidation. The Company owns 3,500,000 common shares (which is approximately 44% of the equity interest as of March 31, 2019) of Melt 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 Melt. Under this method, the Company recognizes earnings and losses of Melt in its consolidated financial statements and adjusts the carrying amount of its investment in Melt accordingly. The Company’s share of earnings and losses are based on the Company’s ownership interest of Melt. Any intra-entity profits and losses are eliminated. During the three months ended March 31, 2019, the Company recorded equity in net loss of Melt of $285. As of March 31, 2019, the carrying value of the Company’s investment in Melt was $5,525. See Note 4 for more information and related party disclosure regarding Melt.
Investment in Surface Pharmaceuticals, Inc. - Related Party | Investment in Surface Pharmaceuticals, Inc. – Related Party In April 2017, the Company formed Surface as a wholly owned subsidiary. In May and July 2018, Surface entered into and closed on a definitive stock purchase agreement with an institutional investor for the purchase of Surface’s Series A Preferred Stock (the “Surface Series A Stock”) that resulted in total proceeds to Surface of approximately $21,000. At the time of the first closing in May 2018, the Company lost voting and ownership control of Surface and it ceased consolidating Surface’s financial statements. The Surface Series A Stock (i) was issued at a purchase price of $3.30 per share; (ii) will vote together with the common stock and all other shares of stock of Surface having general voting power; (iii) will be entitled to the number of votes equal to the number of shares of preferred stock held; (iv) will hold liquidation preference over all other equity interests in Surface; and (v) will have mandatory conversion requirements into Surface common stock upon events including an underwritten initial public offering (“IPO”) of Surface common stock or similar transaction. At the time of deconsolidation, the Company recorded a gain of $5,320 and adjusted the carrying value in Surface to reflect the increased valuation of Surface and the Company’s new ownership interest in accordance with ASC 810-10-40-4(c),Consolidation. The Company owns 3,500,000 common shares (which is approximately 30% of the equity interest as of March 31, 2019) 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 of 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 three months ended March 31, 2019, the Company recorded equity in net loss of Surface of $243. As of March 31, 2019, the carrying value of the Company’s investment in Surface was $4,704. See Note 5 for more information and related party disclosure regarding Surface.
Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842). This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement will differ depending on the lease classification, with finance leases recognizing the amortization of the right-of-use asset separate from the interest on the lease liability and operating leases recognizing a single total lease expense. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP. ASU No. 2016-02 took effect for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition method with no impact to stockholders’ equity. As of March 31, 2019, the Company held on its condensed consolidated balance sheet $6,195 for the right-of-use asset and $6,594 for the related lease liability related to operating leases. The difference between the right of use asset and related lease liability is predominantly deferred rent and other related lease expenses under the new lease accounting standard. For additional information regarding how the Company is accounting for leases under Topic 842, refer to Note 12.
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other. This guidance simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current two-step impairment test under ASC 350. The updated standard eliminates the requirement to calculate a goodwill impairment charge using Step 2. If a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for reporting periods beginning after December 31, 2019 on a prospective basis, and early adoption is permitted. The Company does not expect ASU 2017-04 to have a material effect on the Company’s financial position, results of operations and cash flows.

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