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.

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 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.

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.