Good day, ladies and gentlemen, and welcome to your Harrow Health -- I'm sorry good afternoon, and welcome to the conference call covering Harrow Health’s Financial Results and Business Update for the Second Quarter of 2019. My name is Christy and I will be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. By now, you should have received a copy of the earnings press release. If you have not received a copy, please go to the Investor Relations page of the company's website at www.harrowinc.com. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities law. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrow Health’s control, including risks and uncertainties described from time to time in its SEC filings such as the risks and uncertainties related to the company's ability to make commercially available its compounded formulations and technologies and FDA approval of certain drug candidates in a timely manner or at all. For a list and description of those risks and uncertainties, please see the Risk Factors section of the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. Harrow Health results may differ materially from those projected. Harrow's disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and as accurate only as of today. Additionally, Harrow will refer to non-GAAP financial metrics, specifically adjusted EBITDA and/or adjusted earnings. A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's press release available on the website. With that, I would like to turn the call over to Mark Baum, Chief Executive Officer of Harrow. Mark?

Thanks for joining us. Today we will discuss progress made by Harrow Health businesses during the second quarter of 2019. At Harrow, our vision is simple in pursuit of shareholder value, we’re advocates for patients and providers, and we’re advocates for healthcare innovation. Today, Harrow holds and manages stakes in a growing portfolio of healthcare businesses and this includes equity in these businesses and royalty rights in certain drug candidates they are developing. Our objective is to grow our capital base by building healthcare businesses from the ground up and to eventually return earned capital to Harrow shareholders. This strategy takes advantage of the skills and the experience of Harrow management team, and provide our shareholders with a potentially attractive way to build wealth. Some Harrow businesses are based on programs or ideas developed internally. But many include assets developed outside of Harrow. Regardless of how a business is formed, once the business is financed and deconsolidated or spun out, our interest is maximizing Harrow's shareholder value, which may include eventually divesting some or all of a stake we hold or otherwise leveraging our assets in pursuit of financing new potentially value-driving activities. With the exception of our 3.5 million shares stake in Nasdaq listed Eton Pharmaceuticals, the businesses we own are private companies. However, more of our businesses may become publicly-traded in the future. Being public can offer the advantages of liquidity, access to capital, and transparency for all shareholders. Other businesses, we own such as Surface Pharmaceuticals are operating in "stealth mode", purposely keeping their activities as quiet as possible. This doesn't mean, however, that they aren't doing well or building shareholder value, because in the case of Surface, under the leadership of Dr. Kamran Hosseini, in my view, they are exceeding our expectations. So, regardless of whether…

Hi, everyone. Thank you for taking the time to join our call today. As Mark mentioned, during the second quarter of 2019, we continue to experience the strong growth we've seen in recent quarters. Total revenues for the second quarter were $13.5 million, compared to $10.4 million a year ago. A 30% percent increase and a 10% increase in the first quarter to second quarter. As expected revenue growth was driven primarily by our ImprimisRx ophthalmology business, with a continued increase in unit volumes associated with both our chronic care and acute use formulations. Ophthalmology revenues increased 47% year-over-year during the second quarter. Total cost of sales for the second quarter 2019 was $5.2 million, yielding a gross profit of $8.3 million and a gross margin of 61% compared to a gross profit of $6.2 million for prior year and a gross margin of 60%. Operating expenses totaled $9.1 million, which resulted in a loss from operations of $800,000 during the second quarter of 2019. Our second quarter operating expenses included roughly $1.1 million in costs associated with settling and defending legal matters and about $800,000 related to R&D costs, mostly related to formulation development from our pharmaceutical compounding business. This is compared to the second quarter of last year; we reported operating expenses of $6.9 million and an operating loss of approximately $624,000. At the segment level, our drug development segment contributed a loss of just $170,000, while our pharmaceutical compounding business contributed about $2 million of segmented earnings, which after being adjusted and offset by shared costs; help drive consolidated adjusted earnings in the second quarter of 2019 to about $250,000. Other expenses totaled $1.65 million during the second quarter, giving us a net loss of about $2.4 million for the second quarter in 2019 or about $0.09…

Thanks, Andrew. This is the most exciting and productive time I have seen since founding the company over seven years ago. We believe we can build a $1 billion plus market cap company. Getting there is achievable, although, it likely won't be a linear upward ride, and of course, nothing is guaranteed. But as I stated at the outset of this call, consider where we started from and where we are going. Our trajectory is definitely in the right direction. We see blue skies ahead and great opportunities to build a company that will make our investors financially proud. Before we open it up to Q&A, I would also like to once again voice my sincere gratitude to Harrow employees, employees at all Harrow businesses, including and especially Park Compounding, as well as our consultants and partner vendors for helping us build an exciting and fast growing health care company. With that said, operator, please open the line to questions from today's participants.

Thank you. The floor is now open for questions. [Operator Instructions] And we'll take our first question from Brooks O'Neil with Lake Street Capital.

Good afternoon, guys. Congratulations on all the progress. I have a couple questions. I was hoping to start up focused on the success and improvements. Could you -- you commented Mark in the press release better than expected reception to some of the new products introduced in May. Can you just give us any color about sort of the nature of some of those products and the success you're seeing in the marketplace?

Sure. Thanks Brooks. The products are primarily centered around our surgical portfolio, so filling in gaps. Our goal is that if there is a refractive case, cataract surgery or LASIK procedure, where the setting is a surgical one that we have an entire suite of products that our customers need for the completion of that procedure. While we had a great portfolio of pre and post care drops that were prescribed, there were numerous other formulations and there still are additional formulations that we intend to make available so that we can round out that portfolio. We have a great advantage in that market, because physicians are in surgery centers are getting paid a fixed fee and we believe we are the high quality low cost provider of the medications required for that physician to complete that procedure. And we want to sell the entire suite of products and that's our objective. And so we're rounding out that portfolio, but as I said on the call, we're going to enter new markets in retina, and we're really excited about presbyopia. I think it is the largest untapped market in ophthalmology. And we have some very interesting, I think, contributions in that market. It's also likely a non-insurance market, which lines up really well for our business model. So we're going to continue to innovate ImprimisRx business, continue to provide high value products and you'll see more of that as we've said in the press release coming up in the third quarter and in quarters to come.

Great. So let me then it sort of leads into another question I had, which is obviously, you’re having tremendous success with ImprimisRx in the eye care area and at the same time, you continue to develop these project, 15 companies at least some of which have some interest in, are focus around ophthalmology as well. So, how do you think about either continuing to invest in the Imprimis or setting up subsidiary companies that will also participate in the eye care segment?

Look, we have a pretty -- well, I'm proud of our ophthalmology business, I’ll just say that we have a great team of people building a very special company, and as I said, we have this tailwind -- this tailwind at our back that exists in the ophthalmology pharmaceutical industry, which is interesting. But look, we know a lot about the products for example that Melt is developing and I'll give you an idea of why that's so important, because to the extent Greg is successful as our CEO at Melt and getting that formulation FDA approved, believe me, all of our customers would love to and prefer to have the FDA approved version of that product and so just transitioning our existing customers for that one product, ophthalmology, and I would submit to you that the need for that formulation is far greater in other therapeutic areas like dental and OB/GYN and many others. But just transition the existing ImprimisRx, ophthalmology customer base to the FDA approved version of the product and creates about $100 million revenue, annual revenue business. That's just transitioning the existing customer base flat-lining thing. So, we're excited about what we learn in our ophthalmology compounding business, ImprimisRx and our ability to translate what we know to potentially FDA approved product and then to use our customer base to transition them to the FDA approved products. It really derisk the opportunity to a certain extent for investors because, they know, that the product, if FDA approved is commercially relevant that it's going to be prescribed, not going to be one of these things that gets approved and never prescribed. So that's exciting for us and we know obviously a fair amount about the ophthalmology space and Stowe is a very exciting business that we had been chasing them for over seven months and our advisors and we have great advisors and the ophthalmology business are as excited or even more about that that project. So we're going to do more in ophthalmology and as we have other opportunities even outside of ophthalmology, we'll pursue those as well. But it's a really interesting model and I think, over the next few years, you're going to see quite a bit of shareholder value created through this model.

Great. Let me ask just two more quick ones. I think you commented little bit about the gross margin trend in the quarter, I did not hear exactly what you said. Would you mind just commenting a little bit more about what happened with gross margins this quarter and then the outlook into the back part of the year?

Yes. The gross margins were better in Q2 of 2019 versus Q2 of 2018. So, this quarter traditionally has not been the strongest, when it comes to gross margins. But we still had an improvement over the prior year. What I think is really important is what you're going to see going forward as it relates to margins in particular. We have great confidence that we can hit that 70% margin to be clear, we're not a retail pharmacy getting paid fixed fees to fill prescriptions, making 10%, 12% margins. We are a business that we think in short order here is going to produce gross margins that will rival and potentially exceed our brethren in the specialty pharmaceutical industry. So, you know, that is a great thing -- you'll see that by the way this year, you'll see those improvements I'd mentioned and we said on the call that you'll see equipment come online that is going to quadruple our output, that will reduce our production times for our key products. And so this new semi-automated and fully automated equipment that we're bringing on is going to make us much more efficient. It will happen in the back half of this year and you'll start to see those changes drive gross margin improvements.

Great. I have just one more. I think Andrew mentioned the sale of Park Compounding was contingent on getting regulatory approval for the buyer by August 27th. I just want to check and make sure you guys think that's a realistic objective given that it's just a couple weeks out?

Absolutely. Yes, it's an important point because we have heard from the Buyers Council and the Buyers Council has heard from and spoken to the Board of Pharmacy, and we are confident that we can meet the Board of Pharmacies' minor request in order to close the transaction. Nothing's guaranteed, but we have heard from the Board. We understand what their needs are and we believe we can meet those needs here very quickly and hopefully close this transaction. I think the upshot -- this is a strategic transaction. It allows us to 100% laser-focus on this ophthalmology business. We've got a lot of great products to introduce to the market. We've got a great customer base to introduce them too and this is part of that focus in ophthalmology.

Great. Thank you very much.

Thank you.

Our next question comes from Andrew D'silva with B. Riley FBR.

Hey, good afternoon. Sorry, if you answered any of these questions, I was bouncing between calls, but great quarter by the way as well. Couple quick questions just as far as the ophthalmology growth, the sequential uptick was significantly above what we were looking for and was that primarily due to just seasonality in any way or are you seeing continued increased penetration quarter-over-quarter-over-quarter? And then just as it relates to the sale of Park, were they all of your non- ophthalmology products sales or will you retain some animal health and non-ophthalmology sales once that's divested?

Thanks. Thanks for the question, Andy. Let me take the first -- the last question first. We're going to be an ophthalmology-focused company, so the revenue that we report is going to be ophthalmology related. Our team on the production side, on the dispensing side, on the commercial side, are going to be 100% focused on ophthalmology. We're going to be working with our customers to expand our portfolio within their businesses to help them solve unmet needs for their patients. And we're going to work with and continue to work with the largest surgery center operations in the country to help them get affordable access to medications that they need in order to care for the patients that they serve. The ophthalmology growth quarter-over-quarter has been consistent. We expect it to continue to be consistent. The Q2 revenue growth did not include a slight price increase that we implemented in Q3. So you'll see that reflected in Q3, as Andrew mentioned. But the reality is, is that it is quarter-over-quarter growth, new customers coming online, we're building a battery of refill orders for our chronic care prescriptions, which is very exciting, because it becomes a more predictable flow of revenue. The growth of 115% year-over-year and our chronic care formulations is meaningful. Now from a revenue perspective for us, it exceeds 10% of our overall revenue. And that will continue to grow. We have barely scratched the surface on these chronic care formulations and that's for the existing market. You know for conditions like dry eye disease, only about 10% of the overall patient population that needs a prescription gets a prescription. And so you have a tremendous opportunity on the chronic care side. So we expect that growth rate to continue to fuel growth quarter-over-quarter and quarters to come.

All right. That's great to hear. Just a few more quick questions. As it relates to your New Jersey outsourcing facility, is there any update there with California license and the State Board Pharmacy?

Yeah. What I can tell you is that, we were fortunate enough to get our -- to have our inspection completed. By the way, we had inspections by a number of the most -- well, the largest and I think the most critical Boards of Pharmacy in United States in the last six months. And so, we've, of course, maintained our licensure, because of the great job the team does out there. But we have had our California inspection and we're working with the board there to make sure that we get access to serve the California market through that 503B facility. It's noteworthy that we do have, following a California inspection for our 503A facility, the California ticket that they issued to us. So we had a successful 503A inspection and we're just waiting on the results of the 503B, which should be here fairly soon.

That'd be great, that'd be significant for you guys. And then, as far as the last couple of questions, one can be related to the drug shortage list. Just how nimble can you be at this point to capitalize on that in real time? There's obviously been a lot of movement on the shortage list. And I was -- knock off my last question too, should we expect to benefit from the discrepancy between the accrued amount for the settlements that you've had versus the actual amount since they're significantly lower?

Yeah. Let me touch on the last question first, if that's okay. We settled a lawsuit of -- to give you a little bit of additional color, I think it's a poster child for the need for tort reform, but which we were able to settle a FACS lawsuit as an example, earlier -- was it earlier this year, I believe, end of last year and the settlement required us to send out a form that could be filled out by any one of our customers and I'm telling you, Andy, it was an easy form to fill out. It took 30 seconds to fill out and you stick a stamp on it. You send it in and you get money. But the case was so ridiculous that I think at the end of the day less than 2% of the people who received the form actually decided to spend the 30 seconds or so and fill it out and send it in. So the actual damages are 98% less than what the court was told in the settlement, so we'll have to see what happens as it relates to that particular case. You should know that the vast majority of the settlement amount actually goes to the lawyers that prosecute these nuisance tort cases. And so we'll have to see what the judge does there with respect to the attorney's fees. But we did defend the case. We settled it. We went through the process and it is now behind us.

Yeah, sorry, I was actually talking about the $49,000 versus the $640,000 that you accrued for the Allergan litigation. Just since it's significantly less, I was thinking that you'd have a benefit from that in the third quarter?

Yeah. I'll let Andrew talk about that.

Yeah. Andy the $640,000 as accrued was for the FACS lawsuit that Mark was referring to.

Got it. Okay.

You asked a question about the outsourcing facility in New Jersey and the drug shortage list and whether or not we could nimbly serve those markets and in the past we have, as it relates to certain formulations in glaucoma. And so we'll continue to try and serve those markets. We have a pretty robust growing formulation -- a formulary to offer customers. So as things pop up, if we're there, and we have the formulation available, we'll take advantage of it. I think the focus for our team is not to get out in the drug shortage zone completely, but to totally focus on our ophthalmology customers and meeting their needs, and that as I said was part of the reason for the Park transaction. So we're going to focus on ophthalmology. We've got great tailwinds that are back on the payer -- the payer side in the market. It's very exciting what we're seeing happen, the trends are friend in ophthalmology and we want to take advantage of it because we have -- we think that the number one ophthalmology franchise in the country.

Great. Hey, congrats on the progress. Best of luck closing out 2019. Talk to you soon.

Thank you, Andy.

And that does conclude our question-and-answer session for today. I'll turn the call back over to Mark Baum for any closing remarks.

Thanks for attending everyone. If you have any investor-related questions, please contact our Investor Relations associate, Jon Patton. His direct number 858-704-4587. And this will conclude our call. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time and have a great day.