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STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2024
Equity [Abstract] |
STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION | NOTE 15. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION Preferred Stock At December 31, 2024 and 2023, the Company had 5,000,000 shares of preferred stock, $0.001 par value, authorized and no shares of preferred stock issued and outstanding. Common Stock At each of December 31, 2024 and 2023, the Company had 50,000,000 shares of common stock, $0.001 par value, authorized. Issuances During the Year Ended December 31, 2024 During the year ended December 31, 2024:
| · | The Company issued 152,102 shares of common stock and received proceeds of $1,110,000 upon the exercise of options to purchase 152,102 shares of common stock with exercise prices ranging from $1.70 to $25.86 per share.
| · | The Company issued 32,955 shares of common stock upon the cashless exercise of options to purchase 39,710 shares with exercise prices ranging from $1.70 to $8.00 per share.
| · | The Company issued 44,860 shares of common stock to John Saharek, the Company’s Chief Commercial Officer, upon the cashless exercise of options to purchase 90,000 shares at an exercise price of $7.37. The Company withheld 29,107 shares of common stock for payroll tax withholdings totaling $1,205,000.
| · | 45,000 RSUs granted in February 2021 to Andrew R. Boll, the Company’s Chief Financial Officer, vested, and 26,520 shares of the Company’s common stock were issued to Mr. Boll, net of 18,480 shares of common stock withheld for payroll tax withholdings totaling $197,000.
| · | 150,000 RSUs granted in February 2021 to Mark L. Baum, the Company’s Chief Executive Officer, vested, and 90,164 shares of the Company’s common stock were issued to Mr. Baum, net of 59,836 shares of common stock withheld for payroll tax withholdings totaling $638,000.
| · | 30,000 RSUs granted in February 2021 to John Saharek, the Company’s Chief Commercial Officer, vested, and 17,384 shares of the Company’s common stock were issued to Mr. Saharek, net of 12,616 shares of common stock withheld for payroll tax withholdings totaling $135,000.
| · | 50,000 RSUs granted in February 2021 to various other employees, vested, and 32,452 shares of the Company’s common stock were issued, net of 17,548 shares of common stock withheld for payroll tax withholdings totaling $187,000.
| · | The Company issued 57,517 shares of its common stock underlying RSUs held by a director that ceased providing services to the Company. The RSUs had previously vested, including 3,872 RSUs that vested during the year ended December 31, 2024, but the issuance and delivery of the shares were deferred until the director ceased providing services to the Company.
| · | 41,126 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares are deferred until the applicable directors cease providing services to the Company.
| · | 8,000 shares of the Company’s common stock underlying RSUs issued to consultants vested, but the issuance and delivery of these shares has not occurred.
Issuances During the Year Ended December 31, 2023 During the year ended December 31, 2023:
| ● | the Company closed a public offering of shares of its common stock at an offering price of $17.75 per share (the “Offering”). The Company sold 3,887,324 shares of its common stock in the Offering, resulting in the Company receiving aggregate net proceeds of $64,520,000, after deducting underwriting discounts and commissions and other offering expenses of $4,480,000;
| ● | the Company settled 1,567,913 outstanding PSUs as a result of the achievement of the total stockholder returns (“TSR”) targets set forth in equity incentive awards (the “PSU Agreements”) previously issued to members of the Company’s management team in 2021 (the “2021 Awards”). The 2021 Awards were separated into four tranches and required that the Company achieve and maintain certain levels of TSR ranging from 50% to 175% per share during the five-year period following the grant date. TSR was based on the aggregate of: (i) the percent increase of the closing price of the Company’s common stock from July 22, 2021; and (ii) any dividends or like stockholder distributions as specified in the PSU Agreements. In connection with the settlement of the 2021 Awards, an aggregate of 616,984 shares of the Company’s common stock was withheld by Harrow for payroll tax obligations totaling $11,273,000;
| ● | the Company issued 168,963 shares of its common stock underlying RSUs held by directors that ceased providing services to the Company. The RSUs had previously vested, including 21,620 RSUs during the year ended December 31, 2023, but the issuance and delivery of the shares were deferred until the director ceased providing services to the Company;
| ● | the Company issued 65,148 shares of common stock and received proceeds of $379,000 upon the exercise of options to purchase 65,148 shares of common stock with exercise prices ranging from $1.70 to $8.50 per share;
| ● | the Company issued 62,367 shares of common stock to Mark L. Baum, the Company’s Chief Executive Officer, upon the cashless exercise of options to purchase 180,000 shares at an exercise price of $8.99 per share. The Company withheld from Mr. Baum 77,167 shares as consideration for the cashless exercise and an additional 40,466 shares for payroll tax obligations totaling $849,000;
| ● | the Company issued 55,558 shares of common stock to Andrew R. Boll, the Company’s Chief Financial Officer, upon the cashless exercise of options to purchase 90,000 shares at an exercise price of $6.00 per share. The Company withheld from Mr. Boll 25,521 shares as consideration for the cashless exercise and an additional 8,921 shares for payroll tax obligations totaling $189,000;
| ● | the Company issued 10,222 shares of common stock to John Saharek, the Company’s Chief Commercial Officer, upon the cashless exercise of options to purchase 20,000 shares at an exercise price of $4.16 per share. The Company withheld from Mr. Saharek 6,485 shares as consideration for the cashless exercise and an additional 3,293 shares for payroll tax obligations totaling $41,000;
| ● | upon vesting of 23,000 RSUs granted in January 2020 to Andrew R. Boll, the Company’s Chief Financial Officer, the Company issued 13,398 shares of common stock to Mr. Boll, net of 9,602 shares of common stock withheld for payroll tax withholdings totaling $142,000;
| ● | upon vesting of 88,000 RSUs granted in January 2020 to Mark L. Baum, the Company’s Chief Executive Officer, the Company issued 52,821 shares of common stock to Mr. Baum, net of 35,179 shares of common stock withheld for payroll tax withholdings totaling $519,000; and
| ● | 43,023 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares were deferred until the applicable director ceased providing services to the Company.
Stock Option Plan On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, as subsequently amended (the “2007 Plan:). The 2007 Plan reached its term in September 2017, and the Company can no longer issue additional awards under this plan, however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity or are otherwise cancelled/forfeited. On June 13, 2017, the Company’s Board of Directors and stockholders adopted the Company’s 2017 Incentive Stock and Awards Plan which was subsequently amended on June 3, 2021 (as amended, the “2017 Plan” together with the 2007 Plan, the “Plans”). As of December 31, 2024, the 2017 Plan provides for the issuance of a maximum of 6,000,000 shares of the Company’s common stock. The purpose of the Plans are to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plans, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, restricted stock units and restricted stock. The Plans are administered by the Compensation Committee of the Company’s Board of Directors. The Company had 38,968 shares available for future issuances under the 2017 Plan at December 31, 2024. Stock Options A summary of stock option activity under the Plan for the year ended December 31, 2024 is as follows: SCHEDULE OF STOCK OPTION PLAN ACTIVITY
|  | Number of shares |  |  | Weighted Avg. Exercise Price |  |  | Weighted Avg. Remaining Contractual Life |  |  | Aggregate Intrinsic Value |
Options outstanding – January 1, 2024 |  |  | 2,711,317 |  |  | $ | 6.25 |  |  |  |  |  |  |  |  |
Options granted |  |  | 152,500 |  |  | $ | 17.36 |  |  |  |  |  |  |  |  |
Options exercised |  |  | (281,812 | ) |  | $ | 7.23 |  |  |  |  |  |  |  |  |
Options cancelled/forfeited |  |  | (113,406 | ) |  | $ | 13.51 |  |  |  |  |  |  |  |  |
Options outstanding – December 31, 2024 |  |  | 2,469,099 |  |  | $ | 6.49 |  |  |  | 3.19 |  |  | $ | 67,035,000 |
Options exercisable |  |  | 2,226,858 |  |  | $ | 5.52 |  |  |  | 2.59 |  |  | $ | 62,413,000 |
Options vested and expected to vest |  |  | 2,438,378 |  |  | $ | 6.35 |  |  |  | 3.12 |  |  | $ | 66,501,000 |
A summary of stock option activity under the Plan for the year ended December 31, 2023 is as follows:
|  | Number of shares |  |  | Weighted Avg. Exercise Price |  |  | Weighted Avg. Remaining Contractual Life |  |  | Aggregate Intrinsic Value |
Options outstanding – January 1, 2023 |  |  | 3,027,701 |  |  | $ | 5.90 |  |  |  |  |  |  |  |  |
Options granted |  |  | 135,500 |  |  | $ | 17.81 |  |  |  |  |  |  |  |  |
Options exercised |  |  | (355,148 | ) |  | $ | 7.36 |  |  |  |  |  |  |  |  |
Options cancelled/forfeited |  |  | (96,736 | ) |  | $ | 7.49 |  |  |  |  |  |  |  |  |
Options outstanding – December 31, 2023 |  |  | 2,711,317 |  |  | $ | 6.25 |  |  |  | 4.00 |  |  | $ | 14,303,000 |
Options exercisable |  |  | 2,432,826 |  |  | $ | 5.55 |  |  |  | 3.45 |  |  | $ | 13,760,000 |
Options vested and expected to vest |  |  | 2,673,670 |  |  | $ | 6.15 |  |  |  | 3.93 |  |  | $ | 14,243,000 |
The aggregate intrinsic value in the tables above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on December 31, 2024 and 2023, based on the closing price of the Company’s common stock of $33.55 and $11.20, respectively, on that date. The intrinsic value of the options exercised in 2024 and 2023 was $7,011,000 and $4,580,000, respectively. During 2024 and 2023, the Company recognized no tax benefit from stock options exercised during these periods. During the year ended December 31, 2024, the Company granted stock options to certain employees. The stock options were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the securities exchange on which the common stock was then listed, at the grant date and have contractual terms of 10 years. Vesting terms for options granted to employees during the year ended December 31, 2024 generally included one of the following vesting schedules: 25% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75% of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over three years; and 100% of the shares subject to the option vest on a quarterly basis in equal installments over three years. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans) and in the event of certain modifications to the option award agreement. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The Company calculates expected volatility based solely on the historical volatilities of the common stock of the Company. The expected term of options granted was determined in accordance with the “simplified approach,” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates. For option grants to employees and directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, which would affect the determination of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of grant. The table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees: SCHEDULE OF FAIR VALUE ASSUMPTIONS
|  | 2024 |  |  | 2023 |
Weighted-average fair value of options granted |  | $ | 11.46 |  |  | $ | 11.49 |
Expected terms (in years) |  |  | 6.11 |  |  |  | 6.11 |
Expected volatility |  |  | 68 – 73% |  |  |  | 68 – 70% |
Risk-free interest rate |  |  | 3.72 – 4.48% |  |  |  | 3.59 – 4.80% |
Dividend yield |  |  | - |  |  |  | - |
The following table summarizes information about stock options outstanding and exercisable at December 31, 2024: SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE
|  |  | Options Outstanding |  |  | Options Exercisable |
Range of Exercise Prices |  |  | Number Outstanding |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Weighted Average Exercise Price |  |  | Number Exercisable |  |  | Weighted Average Exercise Price |
$ | 1.47 - $1.70 |  |  |  | 31,942 |  |  |  | 2.71 |  |  | $ | 1.68 |  |  |  | 31.942 |  |  | $ | 1.68 |
$ | 1.73 |  |  |  | 250,000 |  |  |  | 3.00 |  |  | $ | 1.73 |  |  |  | 250,000 |  |  | $ | 1.73 |
$ | 2.23 |  |  |  | 270,000 |  |  |  | 2.09 |  |  | $ | 2.23 |  |  |  | 270,000 |  |  | $ | 2.23 |
$ | 2.40- $2.60 |  |  |  | 14,068 |  |  |  | 2.07 |  |  | $ | 2.57 |  |  |  | 14,068 |  |  | $ | 2.57 |
$ | 3.95 |  |  |  | 308,500 |  |  |  | 1.25 |  |  | $ | 3.95 |  |  |  | 308,500 |  |  | $ | 3.95 |
$ | 4.49- $5.72 |  |  |  | 92,300 |  |  |  | 4.61 |  |  | $ | 5.53 |  |  |  | 92,300 |  |  | $ | 5.53 |
$ | 6.30 |  |  |  | 285,000 |  |  |  | 4.14 |  |  | $ | 6.30 |  |  |  | 285,000 |  |  | $ | 6.30 |
$ | 6.75- $7.26 |  |  |  | 44,006 |  |  |  | 7.41 |  |  | $ | 6.84 |  |  |  | 21,319 |  |  | $ | 6.79 |
$ | 7.30 |  |  |  | 274,500 |  |  |  | 5.01 |  |  | $ | 7.30 |  |  |  | 274,500 |  |  | $ | 7.30 |
$ | 7.60 - $45.64 |  |  |  | 898,783 |  |  |  | 3.06 |  |  | $ | 10.09 |  |  |  | 679,229 |  |  | $ | 8.10 |
$ | 1.47 - $45.64 |  |  |  | 2,469,099 |  |  |  | 3.19 |  |  | $ | 6.49 |  |  |  | 2,226,858 |  |  | $ | 5.52 |
As of December 31, 2024, there was approximately $2,158,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. That expense is expected to be recognized over the weighted-average remaining vesting period of 2.73 years. The stock-based compensation for all stock options was $624,000 and $782,000 during the years ended December 31, 2024 and 2023, respectively. Performance Stock Units Grants During the Year Ended December 31, 2023 In April 2023, the Company granted an aggregate of 1,567,913 PSUs to members of its senior management including Mark Baum, Chief Executive Officer, Andrew Boll, Chief Financial Officer, and John Saharek, Chief Commercial Officer, which are subject to the satisfaction of certain market-based and continued service conditions (the “2023 PSUs”). The vesting of the 2023 PSUs require (i) a minimum of a two-year service period and (ii) during a five-year term, the achievement and maintenance of Company common stock price targets for ten consecutive trading days ranging between $25.00 to $50.00 per share, separated into four separate tranches as described further in the table below. SCHEDULE OF PERFORMANCE STOCK UNITS
Tranche |  | Number of Shares |  |  | Target Share Price* |
Tranche 1 |  |  | 223,988 |  |  | $ | 25.00 |
Tranche 2 |  |  | 335,981 |  |  | $ | 35.00 |
Tranche 3 |  |  | 447,975 |  |  | $ | 45.00 |
Tranche 4 |  |  | 559,969 |  |  | $ | 50.00 |
* | Target Share Price assumes that no dividends or like distributions are made to stockholders of the Company. If such distributions are made, the Target Share Price would decrease accordingly, to the benefit of the employee, to account for the dividend/distribution as a part of the Target Share Price.
The aggregate fair value of the 2023 PSUs was $29,106,000 using a Monte Carlo Simulation with a five-year life, 65% volatility and a risk-free interest rate of 10.34%. This amount is being amortized over a two-year derived service period. A summary of the Company’s PSU activity and related information for the year ended December 31, 2024 is as follows: SCHEDULE OF PERFORMANCE STOCK UNITS ACTIVITY
|  | Number of PSUs |  |  | Weighted Average Grant Date Fair Value |
PSUs unvested – January 1, 2024 |  |  | 1,567,913 |  |  | $ | 18.56 |
PSUs granted |  |  | - |  |  | $ | - |
PSUs vested |  |  | - |  |  | $ | - |
PSUs cancelled/forfeited |  |  | - |  |  | $ | - |
PSUs unvested – December 31, 2024 |  |  | 1,567,913 |  |  | $ | 18.56 |
A summary of the Company’s PSU activity and related information for the year ended December 31, 2023 is as follows:
|  | Number of PSUs |  |  | Weighted Average Grant Date Fair Value |
PSUs unvested – January 1, 2023 |  |  | 1,567,913 |  |  | $ | 6.45 |
PSUs granted |  |  | 1,567,913 |  |  | $ | 18.56 |
PSUs vested |  |  | (1,567,913 | ) |  | $ | 6.45 |
PSUs cancelled/forfeited |  |  | - |  |  | $ | - |
PSUs unvested – December 31, 2023 |  |  | 1,567,913 |  |  | $ | 18.56 |
As of December 31, 2024, the total unrecognized compensation expense related to unvested PSUs was approximately $7,276,000 which is expected to be recognized over a weighted-average period of 0.25 years, based on estimated vesting schedules. The stock-based compensation for PSUs was $14,553,000 and $13,753,000 during the years ended December 31, 2024 and 2023, respectively. During 2024 and 2023, the Company recognized no tax benefit from the vesting of PSUs during these periods. Restricted Stock Units RSU awards are granted subject to certain vesting requirements and other restrictions, including performance and market-based vesting criteria. The grant date fair value of the RSUs, which has been determined based upon the market value of the Company’s common stock on the grant date, is expensed over the vesting period of the RSUs. Grants During the Year Ended December 31, 2024 During the year ended December 31, 2024, the Company’s non-employee members of the Board of Directors were granted 43,961 time-based vesting RSUs with a fair market value of $790,000, which vest in equal quarterly installments over one year. The Company also granted 283,870 time-based vesting RSUs with a fair market value of $7,286,000 to certain employees and consultants. Vesting terms for RSUs granted to employees and consultants during the year ended December 31, 2024 generally vest in equal installments over three or four years and vest in equal quarterly installments over one year. Grants During the Year Ended December 31, 2023 During the year ended December 31, 2023, the Company’s non-employee members of the Board of Directors were granted 41,301 time-based vesting RSUs with a fair market value of $800,000, which vest in equal quarterly installments over one year. The Company also granted 86,873 time-based vesting RSUs with a fair market value of $697,000 to certain employees, which vest in full on the third anniversary of the grant date. A summary of the Company’s RSU activity and related information for the year ended December 31, 2024 is as follows: SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY
|  | Number of RSUs |  |  | Weighted Average Grant Date Fair Value |
RSUs unvested – January 1, 2024 |  |  | 363,029 |  |  | $ | 9.23 |
RSUs granted |  |  | 327,831 |  |  | $ | 24.64 |
RSUs vested |  |  | (327,998 | ) |  | $ | 10.22 |
RSUs cancelled/forfeited |  |  | (9,750 | ) |  | $ | 11.64 |
RSUs unvested at December 31, 2024 |  |  | 353,112 |  |  | $ | 22.55 |
A summary of the Company’s RSU activity and related information for the year ended December 31, 2023 is as follows:
|  | Number of RSUs |  |  | Weighted Average Grant Date Fair Value |
RSUs unvested – January 1, 2023 |  |  | 493,806 |  |  | $ | 7.99 |
RSUs granted |  |  | 128,174 |  |  | $ | 11.68 |
RSUs vested |  |  | (175,643 | ) |  | $ | 8.67 |
RSUs cancelled/forfeited |  |  | (83,308 | ) |  | $ | 6.84 |
RSUs unvested at December 31, 2023 |  |  | 363,029 |  |  | $ | 9.23 |
As of December 31, 2024, the total unrecognized compensation expense related to unvested RSUs was approximately $7,703,000 which is expected to be recognized over a weighted-average period of 1.85 years, based on estimated vesting schedules. The stock-based compensation for RSUs was $2,442,000 and $1,161,000 during the years ended December 31, 2024 and 2023, respectively. During 2024 and 2023, the Company recognized a tax benefit of $12,000 and $0, respectively, from the vesting of RSUs during the period. The Company recorded total stock-based compensation (including issuance of common stock for services and accrual for stock-based compensation) related to equity instruments granted to employees, directors and consultants as follows: SCHEDULE OF STOCK BASED COMPENSATION GRANTED TO EMPLOYEES, DIRECTORS AND CONSULTANTS
|  | 2024 |  |  | 2023 |
|  | For the Years Ended December 31, |
|  | 2024 |  |  | 2023 |
Employees – selling, general and administrative |  | $ | 14,812,000 |  |  | $ | 13,279,000 |
Employees – R&D |  |  | 1,722,000 |  |  |  | 1,662,000 |
Directors – selling, general and administrative |  |  | 800,000 |  |  |  | 688,000 |
Consultants – selling, general and administrative |  |  | 285,000 |  |  |  | 67,000 |
Total |  | $ | 17,619,000 |  |  | $ | 15,696,000 |

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