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Item 1A. Risk Factors

2026-03-20 compared with 2025-03-20 · 153 added, 79 removed, 385 unchanged (38% of the section changed)

An investment in our common stock involves significant risks.

You should carefully consider the risks and uncertainties, the risk factors set forth in the documents and reports filed with the SEC, and the risks described below before you make an investment decision regarding our common stock.

You should carefully consider the risks and uncertainties, the risk factors set forth in the documents and reports previously filed with the SEC, and the risks described below before you make an investment decision regarding our common stock.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations.

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We may suffer losses on our principal invested in credit and royalty transactions.

Most of the assets of our Finance Receivables segment are, and are expected to continue to be, royalty streams or debt backed by royalty streams or revenue interests paid by small and middle-market life science businesses, which are highly speculative and involve a high degree of risk of credit loss.

Most of the assets of our Finance Receivables segment are, and are expected to continue to be, royalty streams or debt backed by royalty streams or revenue interests paid by small and middle-market life sciences businesses, which are highly speculative and involve a high degree of risk of credit loss.

In addition, we own royalties or invest in debt backed by royalties or revenue interests that are derived by pharmaceutical and biologic products that are early in their commercial launch, face intense competition or are subject to other risks, which similarly involve a high degree of risk of principal loss.

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In addition, the small- and middle-market companies that we target to advance debt are subject to a number of other significant risks, including:

• these companies may have limited financial resources and may be unable to meet their obligations under their financial instruments that we hold, which may be accompanied by a deterioration in the value of their assets or of any collateral with respect to any financial obligations and a reduction in the likelihood of our realization of any guarantees we may have obtained in connection with our investment;

• they may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

• they are more likely to depend on the management talents and efforts of a small group of persons;

• limited financial resources and potential inability to meet their obligations under their financial instruments that we hold, which may be accompanied by a deterioration in the value of their assets or of any collateral with respect to any financial obligations and a reduction in the likelihood of our realization of any guarantees we may have obtained in connection with our investment;

• potentially shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

• higher likelihood that they depend on the management talents and efforts of a small group of persons;

therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our partner company, and in turn, on us;

• they may have less predictable operating results, may from time to time be parties to litigation, may be engaged in changing businesses with products subject to a risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;

• they operate in the life science industry, which is both highly competitive and subject to extensive regulatory oversight, and their products may be recalled or displaced by new products, or they may lose regulatory approval altogether;

• less predictable operating results, may from time to time be parties to litigation, and may be engaged in changing businesses with products subject to a risk of obsolescence, thus requiring substantial additional capital to support their operations, finance expansion or maintain their competitive position;

• they operate in the life sciences industry, which is both highly competitive and subject to extensive regulatory oversight, and their products may be recalled or displaced by new products, or they may lose regulatory approval altogether;

• changes in laws and regulations, as well as their interpretations, may adversely affect their business, financial structure or prospects;

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If we match our competitors’ pricing, terms and structure, we may experience decreased net interest and royalty income and increased risk of credit loss.

Healthcare and life science industries are subject to extensive government regulation, litigation risk, reimbursement risk and certain other risks particular to those industries.

We have invested and plan to continue investing in cash flow streams produced by life science products that are subject to extensive regulation by the Food and Drug Administration ("FDA"), similar foreign regulatory authorities, and to a lesser extent, other federal and state agencies.

Healthcare and life sciences industries are subject to extensive government regulation, litigation risk, reimbursement risk and certain other risks particular to those industries.

We have invested and plan to continue investing in cash flow streams produced by life sciences products that are subject to extensive regulation by the U.S.

Food and Drug Administration (“FDA”), similar foreign regulatory authorities, and to a lesser extent, other federal and state agencies.

If any of these products and the companies which manage such products fails to comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect their sales levels and operations.

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The commercial success of such products and services could be compromised if governmental or third-party payors do not provide coverage and reimbursement, breach, rescind or modify their contracts or reimbursement policies or delay payments for such products and services.

Companies in the life science industry may also have a limited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers when needed.

Companies in the life sciences industry may also have a limited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers when needed.

Any of these factors could materially and adversely affect the operations of a partner company, which in turn, would impair our ability to timely collect principal and interest payments owed to us or decrease our royalty-related income.

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As competitors continue to introduce competitive products, the ability of our partner companies to continue effectively marketing their existing product portfolio, and to develop and acquire innovative products and technologies that improve efficacy, safety, patients’ and clinicians’ ease of use and cost-effectiveness is important to the success of such partner companies.

The success of new product offerings will depend on many factors, including the ability to properly anticipate and satisfy customer needs, obtain regulatory approvals on a timely basis, develop and manufacture products in an economical and timely manner, obtain or maintain advantageous positions with respect to intellectual property, and differentiate products from competitors.

property, and differentiate products from competitors.

Failure by our partner companies to successfully commercialize existing or planned products, or acquire other new products, could have a material adverse effect on our business, financial condition and results of operations.

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The factors influencing these various assumptions and estimates cannot be calculated or predicted with certainty, and if our assumptions and estimates differ significantly from actual outcomes and results, our business, financial condition, results of operations, liquidity and cash flows may be materially and adversely affected.

We generally do not control our partner companies.

We generally do not control our partner companies, and our partner companies may make decisions with which we don’t agree or that don’t serve our business or financial interests.

We generally only hold royalties, debt backed by royalties, and revenue interests that are issued by our partner companies.

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Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.

For instance, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp.

were each swept into receivership.

Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general.

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Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

We may not be able to complete transactions without co-investments from third parties.

We may co-invest with third parties through our registered investment advisory business or otherwise.

In certain circumstances, we may not be able to fund transactions without the participation of such third parties.

In the event that we are unable to find suitable third parties to co-invest with us or if such third party fails to close, we may not be able to invest in an otherwise attractive opportunity, which could materially impact our results of operations.

Our quarterly and annual operating results are subject to fluctuation as a result of the nature of our business, and if we fail to achieve our investment objective, the market price of our common stock may decline.

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If the credit quality of our partner companies declines, if the risk profile of a market, industry, or group of partner companies changes significantly, or if the markets for finance receivables or other collateral deteriorates significantly, our allowance for credit losses may prove inadequate, which could have a material adverse effect on our business, results of operations, and financial condition.

The phase-out and replacement of LIBOR may adversely affect the value of our portfolio securities

As of June 30, 2023, no settings of LIBOR continue to be published on a representative basis and publication of many non-U.S.

Dollar LIBOR settings have been entirely discontinued.

On July 29, 2021, the U.S.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, recommended replacing U.S.

dollar LIBOR with alternative reference rates based on the Secured Overnight Financing Rate (“SOFR”).

SOFR significantly differs from LIBOR, both in the actual rate and how it is calculated.

Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act (“LIBOR Act”), was signed into law in the United States.

This legislation established a uniform benchmark replacement process for certain financial contracts that mature after June 30, 2023 that do not contain clearly defined or practicable LIBOR fallback provisions.

The legislation also created a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the U.S.

Federal Reserve.

In addition, the U.K.

Financial Conduct Authority, which regulates the publisher of LIBOR (ICR Benchmark Administration) has announced that it will require the continued publication of one, three and six month tenors of U.S.

dollar LIBOR on a non-representative synthetic basis until the end of September 2024, which may result in certain non-U.S.

law-governed contracts and U.S.

law-governed contracts not being covered by the federal legislation remaining on synthetic U.S.

dollar LIBOR until the end of this period.

The transition from LIBOR or the use of synthetic LIBOR in floating-rate debt securities in our portfolio or issued by us could have a material and adverse impact on the value or liquidity of those instruments.

The transition away from LIBOR to alternative reference rates is complex and could have a material adverse effect on our business, financial condition and results of operations, including as a result of any changes in the pricing of our investments, changes to the documentation for certain of our investments and the pace of such changes, disputes and other actions regarding the interpretation of current and prospective loan documentation or modifications to processes and systems.

A rise in the reference rates could have an adverse impact on the ability of our partner companies to service their debt obligations to us.

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Risks Related to Pharmaceutical Development Segment

Enteris’ technology or products could give rise to product liability claims.

While Enteris does not have a commercial product, Enteris’ business exposes us to the risk of product liability claims from human testing and the manufacturing of pharmaceutical tablets currently used in clinical trials.

The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims, even if Enteris’ or Enteris’ partners’ products are not actually at fault for causing an injury.

Furthermore, Enteris’ products may cause, or may appear to cause, adverse side effects or potentially dangerous drug interactions that we may not learn about or understand fully until the drug is actually manufactured and sold.

MOD3's technology or products could give rise to product liability claims.

While MOD3 does not have a commercial product, MOD3 business exposes us to the risk of product liability claims from human testing and the manufacturing of pharmaceutical tablets currently used in clinical trials.

The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims, even if MOD3 or MOD3 partners’ products are not actually at fault for causing an injury.

Furthermore, MOD3 products may cause, or may appear to cause, adverse side effects or potentially dangerous drug interactions that we may not learn about or understand fully until the drug is actually manufactured and sold.

Product liability claims can be expensive to defend and may result in large judgments against us.

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While we currently maintain product liability insurance coverage, the amount of coverage may not be sufficient to protect us against losses or may be unavailable in the future on acceptable terms, if at all.

Because Enteris is a biopharmaceutical company, its operations are subject to extensive government regulation.

Because MOD3 is a biopharmaceutical company, its operations are subject to extensive government regulation.

Our research, development and production activities, as well as those of our collaborators and licensees, are subject to significant regulation by federal, state, local and foreign governmental authorities.

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Our partners’ inability to obtain approvals or delays in obtaining approvals would adversely affect our ability to manufacture products, and to receive revenue from milestone payments, product sales or royalties.

Enteris’ present and future business is, and will continue to be, subject to various other laws, rules and/or regulations applicable to us as a result of our domestic and international business.

The FDA and other regulatory agencies may inspect the Enteris production facility at any time to ensure compliance with current good manufacturing practice guidelines.

These guidelines require that Enteris conduct its production operations in strict compliance with established rules for manufacturing and quality controls.

MOD3 present and future business is, and will continue to be, subject to various other laws, rules and/or regulations applicable to us as a result of our domestic and international business.

The FDA and other regulatory agencies may inspect the MOD3 production facility at any time to ensure compliance with current good manufacturing practice guidelines.

These guidelines require that MOD3 conduct its production operations in strict compliance with established rules for manufacturing and quality controls.

Any of these agencies can suspend production operations and product sales if they find significant or repeated deviations from these guidelines.

A suspension would likely cause Enteris to incur additional costs or delays in product development and manufacturing.

Enteris relies on third parties to supply most of the necessary raw materials and supplies for the products we manufacture on behalf of our customers and our inability to obtain such raw materials or supplies may adversely impact our business, financial condition, and results of operations.

A suspension would likely cause MOD3 to incur additional costs or delays in product development and manufacturing.

MOD3 relies on third parties to supply most of the necessary raw materials and supplies for the products we manufacture on behalf of our customers and our inability to obtain such raw materials or supplies may adversely impact our business, financial condition, and results of operations.

Our operations require various raw materials, including proprietary media, resins, buffers, and filters, in addition to numerous additional raw materials supplied primarily by third parties.

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Furthermore, we may not realize the degree, or timing, of benefits we anticipate when we first enter into a transaction.

For example, with an effective date of January 1, 2024, we entered into an exclusive Option and Asset Purchase Agreement with a strategic partner which granted the strategic partner an exclusive option to acquire certain of Enteris’ assets related to its business of providing contract manufacturing, formulation and development services.

The strategic partner must exercise its Option by or before January 1, 2026.

As of December 31, 2024, Enteris is classified as held for sale as the Option is expected to be exercised within the next 12 months.

There is a possibility that the strategic partner may not exercise its Option in the anticipated timeframe or at all.

Additionally, the existence of the Option may deter future potential opportunities to monetize certain Enteris assets.

Any of the foregoing could adversely affect our business and results of operations.

We are dependent upon our key management personnel for our future success.

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Changes in our management may cause uncertainty in, or be disruptive to, our business.

Certain of our directors and management team members have been with us in those capacities for only a short time.

Our success depends upon the continued services of executive officers and other key personnel, as well as their ability to effectively transition to their successors.

We have experienced changes in our senior leadership in 2024, including the appointment of a new Chief Financial Officer in July 2024, following the resignation of our former Chief Financial Officer in February 2024.

In addition, Marcus Pennington resigned from our Board in September 2024.

Although we have endeavored to implement any management and director transition in a non-disruptive manner, such transitions might impact our business, and give rise to uncertainty among our customers, investors, vendors, employees and others concerning our future direction and performance, which may materially and adversely affect our business, financial condition, results of operations and cash flows, and our ability to execute our business model.

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Because we are relying on the exemptions from corporate governance requirements as a result of being a “controlled company” within the meaning of the Nasdaq listing standards, you do not have the same protections afforded to stockholders of companies that are subject to such requirements.

Because Carlson controls a majority of our common stock, we are a “controlled company” within the meaning of the Nasdaq Capital Market ("Nasdaq") listing standards.

Because entities affiliated with Carlson Capital, L.P.

(“Carlson”) control a majority of our common stock, we are a “controlled company” within the meaning of the Nasdaq Capital Market (“Nasdaq”) listing standards.

Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and may elect not to comply with certain Nasdaq corporate governance requirements, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, and (3) the requirement that the board have a compensation committee composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

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The revolving credit period will be followed by a one-year amortization period, with the final maturity date of the Credit Agreement occurring on June 28, 2027.

On October 10, 2023, we entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million, subject to certain limitations.

On December 4, 2025, the Company and the Lenders entered into a Sixth Amendment to the Credit Agreement (the “Amendment”), which amended the Credit Agreement, dated as of June 28, 2023, in order to reduce the aggregate commitments thereunder from $60.0 million to $10.0 million.

Our prior credit agreement with Cadence Bank was terminated in connection with the establishment of the new Credit Agreement.

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If we are not able to continue to satisfy the continued listing standards, or qualify for an exemption to such standards, then we could be subject non-compliance status or de-listing.

As previously announced, in 2022, we received a letter from Nasdaq indicating that, as a result of the resignations of four of our directors, we were no longer in compliance with Nasdaq Listing Rules 5605(b)(1), 5605(c)(2), 5605(d)(2) and 5605(e)(1), which require the Board to be comprised of a majority of independent directors, that the audit committee consist of at least three independent members and the compensation committee consist of at least two independent members, and that director nominees be selected, or be recommended for the Board’s selection, by a separate vote of a majority of independent directors or a committee comprised solely of independent directors.

We have in the past received a letter from Nasdaq indicating that we were not in compliance with Nasdaq's listing standards.

While we have successfully regained compliance, we can provide no assurance that we will continue to maintain compliance with such standards.

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Funds affiliated with Carlson can control or exert significant influence over our management and policies through their ownership of a large amount of our common stock.

As of December 31, 2024, funds affiliated with Carlson owned in the aggregate 68.7% of our combined issued and outstanding common stock and unvested restricted stock.

As of December 31, 2025, Carlson owned in the aggregate 75.1% of our combined issued and outstanding common stock and unvested restricted stock.

Due to the large percentage of ownership by funds affiliated with Carlson, they have the ability to control or exert significant influence over our management and policies, such as the election of our directors, the appointment of new management and the approval of any other action requiring the approval of our stockholders, including any amendments to our certificate of incorporation, a sale of all or substantially all of our assets or a merger or other significant transaction.

The investment objectives of Carlson and its affiliates may from time to time be different than or conflict with those of our other stockholders.

In addition, pursuant to the terms of a Stockholders’ Agreement entered into on February 27, 2023 (as amended, the “Stockholders’ Agreement”), funds affiliated with Carlson have the right to approve specific transactions, including the incurrence of indebtedness over specified amounts, the sale of assets over specified amounts, declaration of dividends, loans, capital contributions to or investments in any third party over specified amounts, changes in the size of the board of directors and repurchases of common stock.

In addition, pursuant to the terms of a Stockholders’ Agreement entered into on February 27, 2023, between the Company and Carlson (as amended, the “Stockholders’ Agreement”), Carlson has the right to approve specific transactions, including the incurrence of indebtedness over specified amounts, the sale of assets over specified amounts, declaration of dividends, loans, capital contributions to or investments in any third party over specified amounts, changes in the size of the board of directors and repurchases of common stock.

If there are substantial sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees, and significant stockholders including funds associated with Carlson.

Funds associated with Carlson own an aggregate of 68.7% (8,393,088 c ommon shares).

Pursuant to the Stockholders’ Agreement entered into on February 27, 2023, as amended, and a Registration Rights Agreement entered into on September 6, 2013, we filed a Registration Statement on Form S-3 with the SEC on February 3, 2020, which became effective on February 19, 2020, to register all of the common stock owned by funds associated with Carlson for sale freely in the public market from time to time.

Funds associated with Carlson own an aggregate of 75.1% (9,078,719 common shares).

Pursuant to the Stockholders’ Agreement entered into on February 27, 2023, and a Registration Rights Agreement entered into on September 6, 2013, between the Company and Carlson (the “Rights Agreement”), we filed a Registration Statement on Form S-3 with the SEC on February 3, 2020, which became effective on February 19, 2020, to register all of the common stock owned by Carlson for sale freely in the public market from time to time.

The market price of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

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We currently have no plans to issue preferred stock.

Additionally, the Rights Agreement is intended to protect our ability to utilize our NOL carryforwards and make it difficult for a third party to acquire a significant number of shares of our common stock.

Additionally, the Rights Agreement is intended to protect our ability to utilize our NOL carryforwards and contains provisions that make it difficult for a third party to acquire a significant number of shares of our common stock.

Our certificate of incorporation and bylaws include provisions that may deter an unsolicited offer to purchase us.

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Our information technology systems, along with those of the third parties whom we rely on, are potentially vulnerable to a variety of evolving cybersecurity threats that may expose our data to unauthorized persons or otherwise compromise its integrity.

These threats may include, but are not limited to, social-engineering attacks (including phishing attacks), business email compromise, online and offline fraud, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), employee misconduct, denial-of-service attacks, access attacks (such as credential stuffing), ransomware attacks, supply-chain attacks, and software bugs as well as cybersecurity failures resulting from human error, catastrophic events (such as fires, floods, hurricanes and tornadoes), loss of data or other information technology assets, and technological errors.

These threats may include, but are not limited to, social-engineering attacks (including phishing attacks), business email compromise, online and offline fraud, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), employee or third party vendor misconduct, denial-of-service attacks, access attacks (such as credential stuffing), ransomware attacks, data breaches, supply-chain attacks, and software bugs as well as cybersecurity failures resulting from human error, catastrophic events (such as fires, floods, hurricanes and tornadoes), loss of data or other information technology assets, and technological errors, and may be enhanced or facilitated by Artificial Intelligence (“AI”).

Further, attempts to disrupt or gain unauthorized access to our and our third party vendors’ information systems from malicious third parties or insider threats may incorporate widely varying and frequently changing tactics, which may be enhanced or facilitated by AI.

We expend resources trying to protect against cybersecurity threats to our information technology systems.

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Further, our insurance coverage may not be adequate or sufficient in type or amount to protect us from or to mitigate liabilities arising out of our privacy and security practices.

We, and our service providers, are subject to a variety of stringent and evolving privacy and data security laws, regulations, and other obligations related to privacy and data security.

Any actual or perceived failure to comply with such obligations could expose us to significant fines or other penalties and otherwise harm our business and operations.

In the U.S., there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including security breach notification laws and consumer protection laws.

Each of these laws is subject to varying interpretations and is constantly evolving.

For example, failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission (“FTC”) Act, 15 U.S.C § 45(a).

The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities.

Further, regulators and legislators in the U.S.

are increasingly scrutinizing and restricting certain personal data transfers and transactions involving foreign countries.

For example, the Department of Justice’s January 8, 2025, rule on “Preventing Access to U.S.

Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons,” prohibits data brokerage transactions involving certain sensitive personal data categories, including health data, genetic data, and biospecimens, to countries of concern, including China.

The regulations also restrict certain investment agreements, employment agreements and vendor agreements involving such data and countries of concern, absent specified cybersecurity controls.

Actual or alleged violations of these regulations may be punishable by criminal and/or civil sanctions, and may result in exclusion from participation in federal and state programs.

Numerous states now have comprehensive privacy laws, adding complexity, variation in requirements, restrictions and potential legal risk requiring additional investment of resources in compliance programs.

For example, the Company may be subject to the California Consumer Privacy Act (“CCPA”), which creates individual privacy rights and places stringent privacy and security obligations on businesses covered by the law including obligations to provide detailed disclosures to California consumers about their data collection, use and sharing practices and provide such consumers with ways to opt out of certain uses of sensitive personal information, including health information.

It also provides for civil penalties for violations and allows for a private right of action for data breaches that is expected to increase data breach litigation.

Failure to comply with the CCPA or other data processing or security laws, or any changes in these laws, could adversely impact the Company’s business and its business plans.

Similar laws have been passed in numerous other states, potentially creating conflicting requirements that would make compliance challenging.

In addition to these comprehensive consumer privacy laws and proposals, a number of other states have passed or proposed more limited privacy laws that focus on specific privacy issues such as biometric data and the privacy of health and medical information, such as Washington state’s My Health My Data Act, which went into effect in March 2024.

These various privacy and data security laws may impact our business activities, relationships with business partners and ultimately the marketing and distribution of our services.

AI presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary information, and personal data.

Issues in the development and use of AI, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations.

As with many technological innovations, AI presents risks and

challenges that could impact our business.

Use of AI technology could pose cybersecurity, data privacy, IT, intellectual property, regulatory, legal, operational, competitive, reputational and other risks and challenges that could affect our business.

Specifically, risks related to accuracy, bias, AI hallucinations, discrimination, harmful content, misinformation, fraud, scams, targeted attacks (including model poisoning or data poisoning), surveillance, data leakage, inequality, environmental harms, and other harms may flow from our development, use, or deployment of AI technologies.

The rapid evolution of AI will require the application of significant resources to design, develop, test and maintain such systems to help ensure that AI is implemented in accordance with applicable law and regulation and in a socially responsible manner and to minimize any real or perceived unintended harmful impacts.

The use of certain AI technology can give rise to intellectual property risks, including by disclosing or otherwise compromising our confidential or proprietary intellectual property and intellectual property infringement, or by undermining our ability to assert or defend ownership rights in intellectual property created with the assistance of AI tools.

We may adopt and integrate generative AI tools into our systems for specific use cases reviewed by legal and information security.

Our vendors may incorporate generative AI tools into their offerings without disclosing this use to us, and the providers of these generative AI tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ ability to maintain an adequate level of service and experience.

If we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of generative AI, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed.

Further, bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property.

In addition, the use of generative AI models in our internal or third-party systems may create new attack surfaces or methods for adversaries, which could impact us and our vendors.

Any of these outcomes could damage our reputation, result in the loss of valuable property and information, and adversely impact our business.

A growing number of legislators and regulators are adopting laws and regulations and have focused enforcement efforts on the adoption of AI and use of such technologies in compliance with ethical standards and societal expectations.

These developments may increase our compliance burden and costs in connection with use of AI and lead to legal liability if we fail to meet evolving legal standards or if use of such technologies results in harms or other causes of action we did not predict.

For example, the EU began implementing the Artificial Intelligence Act (“AI Act”) on August 1, 2024, with a significant part of the law scheduled to come into effect in August 2026.

As currently enacted, the AI Act, which may be amended as part of the EU’s Digital Omnibus, imposes significant obligations on providers and deployers of AI systems, and encourages providers and deployers of AI systems to account for EU ethical principles in their development and use of these systems.

The scope of requirements depends on judicial interpretations and forthcoming legislative amendments, and non-compliance can lead to significant fines.

In the U.S., the AI regulatory environment is complex and uncertain.

Over the past year, states have advanced, and in some cases passed, dozens of laws focusing on AI governance and regulation, including on deployment of AI in healthcare settings.

In addition, various federal regulators have issued guidance and focused enforcement efforts on the use of AI in regulated sectors.

Food and Drug Administration, for example, issued guidance on the use of AI in medical devices, requiring detailed risk management and review processes to obtain approvals.

At the federal level, the Trump Administration has endorsed a federal moratorium on the enforcement of state AI laws, including through a December 11, 2025, executive order on “Ensuring a National Policy Framework for Artificial Intelligence.” So far, these efforts have not been successful at curtailing state action on AI regulation, contributing to a complicated legislative patchwork, which may be litigated in state and federal courts.

If we develop or use AI systems governed by these laws or regulations, we will need to meet higher standards of data quality, transparency, monitoring and human oversight, and we would need to adhere to specific and potentially burdensome and costly ethical, accountability, and administrative requirements, with the potential for significant enforcement or litigation in the event of any perceived non-compliance.

Risks Associated with Investments in the Health Care and Life Sciences Industries

Public health epidemics, pandemics or outbreaks, including COVID-19, could adversely affect our and our partner companies’ businesses.

Public health epidemics, pandemics or outbreaks could adversely affect our and our partner companies’ businesses.

Public health epidemics, pandemics or outbreaks, and the resulting business or economic disruptions resulting therefrom, could adversely impact our and our partner companies’ businesses as well as our ability to raise capital.

The impact of COVID-19 has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 and public and private actions to contain COVID-19 or treat its impact.

COVID-19 has and will likely continue to result in social, economic and labor instability in the countries in which we or our partner companies operate.

COVID-19 has impacted, and may continue to impact, the ability of our borrowers and the marketers of products upon which we derive our royalty income to raise capital in order to fund and conduct their operations during the pandemic.

In certain situations, disruptions to our partner companies, including as a result of global supply chain disruptions, has impaired their ability to fulfill their obligations to us and resulted in defaults in obligations to us.

As a result, we have entered into amendments with certain of our borrowers in order to cure defaults.

Continuing impacts of the pandemic and supply chain disruptions could continue to increase the risk of delinquencies, defaults, declining collateral values associated with our existing loans, and impairments or losses on our loans.

Any such impairment could increase our credit risk and adversely affect the assets and results of operations of our Finance Receivables segment.

An impact of such global health crisis would likely result in significant disruptions to the global economy, capital markets, and social, economic and labor instability in the countries in which we or our partner companies operate.

A global health crisis would likely impact the ability of our borrowers and the marketers of products upon which we derive our royalty income to raise capital in order to fund and conduct their operations.

Disruptions to our partner companies, including as a result of global supply chain disruptions, would impair their ability to fulfill their obligations to us and may result in defaults in obligations to us.

Impacts of supply chain disruptions may increase the risk of delinquencies, defaults, declining collateral values associated with our existing loans, and impairments or losses on our loans.

Any such impairment may increase our credit risk and adversely affect the assets and results of operations of our Finance Receivables segment.

Any abrupt and substantial change in economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments.

Any sustained disruption in the capital markets from the COVID-19 pandemic could negatively impact our and our partner companies’ ability to raise capital.

Any sustained disruption in the capital markets could negatively impact our and our partner companies’ ability to raise capital.

Economic recessions or downturns could impair the ability of our partner companies to repay loans, which, in turn, could increase our non- performing assets, decrease the value of our assets, reduce our volume of new loans and have a material adverse effect on our results of operations.

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Economic slowdowns or recessions could lead to financial losses in our portfolio and a material decrease in revenues, net income and assets.

Unfavorable economic

conditions could also increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

Unfavorable economic conditions could also increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

A partner company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the partner company’s ability to meet its obligations under the loans that we hold.

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Additionally, any such changes to pharmaceutical product reimbursement similarly could reduce the revenues of the pharmaceutical products from which we receive royalties.

Risks Relating to the Mergers

Stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Mergers.

Our stockholders will experience a reduction in their percentage ownership interests and effective voting power in respect of the combined company relative to their percentage ownership interests in the Company prior to the Mergers unless they hold a comparable or greater percentage ownership in RWAY (as defined below).

Consequently, our stockholders should generally expect to exercise less influence over the management and policies of the combined company following the Mergers than they currently exercise over the management and policies of the Company.

In addition, prior to completion of the Mergers, subject to certain restrictions in the Merger Agreement and certain restrictions under the 1940 Act for issuances at prices below the then-current NAV per share of RWAY common stock and the Company’s common stock, RWAY and the Company may issue additional shares of RWAY common stock and Company common stock, respectively, which would further reduce the percentage ownership of the combined company to be held by current RWAY stockholders and Company stockholders.

The announcement and pendency of the Mergers could adversely affect our businesses, financial results and operations.

The announcement and pendency of the Mergers could cause disruptions in, and create uncertainty surrounding, our business, including affecting relationships with existing and future borrowers, which could have a significant negative impact on future revenues and results of operations, regardless of whether the Mergers are completed.

In addition, we have diverted, and will continue to divert, management resources towards the completion of the Mergers, which could have a negative impact on future revenues and results of operations.

We are also subject to the restrictions on the conduct of our business prior to the completion of the Mergers set forth in the Merger Agreement.

Generally, these restrictions will require us to conduct its business only in the ordinary course and subject to specific limitations, including, among other things, certain restrictions on their ability to make certain investments and acquisitions, sell, transfer or dispose of assets, amend organizational documents and enter into or modify certain material contracts.

These restrictions could prevent us from pursuing otherwise attractive business opportunities, industry developments and future opportunities and may otherwise have a significant negative impact on future investment income and results of operations.

If the Mergers do not close, we will not benefit from the expenses they have incurred in pursuit of the Mergers.

The Mergers may not be completed.

If the Mergers are not completed, we will have incurred substantial expenses for which no ultimate benefit will have been received.

We have incurred out-of-pocket expenses in connection with the Mergers for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Mergers are not completed.

The termination of the Merger Agreement could negatively impact our business.

If the Merger Agreement is terminated, there may be various consequences, including:

• our businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Mergers, without realizing any of the anticipated benefits of completing the Mergers;

• we may not be able to find a party willing to pay an equivalent or more attractive price than the price RWAY agreed to pay in the Mergers;

• we would not realize the anticipated benefits of the Mergers.

The Merger Agreement limits our ability to pursue alternatives to the Mergers.

The Merger Agreement includes restrictions on our ability to solicit proposals for alternative transactions or engage in discussions regarding such proposals, subject to exceptions and termination provisions, which could have the effect of discouraging such proposals from being made or pursued.

The Mergers are subject to closing conditions, including approval by Company stockholders, that, if not satisfied or (to the extent legally allowed) waived, will result in the Mergers not being completed, which may result in material adverse consequences to the business and operations of RWAY and the Company.

The Mergers are subject to closing conditions, including approval of our stockholders that, if not satisfied or (to the extent legally allowed) waived, will prevent the Mergers from being completed.

The closing condition that our stockholders vote to adopt the Merger Agreement may not be waived under applicable law and must be satisfied for the Mergers to be completed.

If our stockholders do not approve the adoption of the Merger Agreement and the Mergers are not completed, the resulting failure of the Mergers could have a material adverse impact on our business and operations.

In addition to the required approvals of our stockholders, the Mergers are subject to a number of other conditions beyond our control that may prevent, delay or otherwise materially adversely affect completion of the Mergers.

We cannot predict whether and when these other conditions will be satisfied.

The failure to complete the Mergers would result in us and our stockholders, failing to realize the anticipated benefits of the Mergers.

We will be subject to operational uncertainties and contractual restrictions while the Mergers are pending.

Uncertainty about the effect of the Mergers may have an adverse effect on the Company and, consequently, on the combined company following completion of the Mergers.

These uncertainties may cause those that deal with the Company to seek to change their existing business relationships.

In addition, the Merger Agreement restricts us from taking actions that it might otherwise consider to be in its best interest.

These restrictions may prevent us from pursuing certain business operations that may arise prior to the completion of the Mergers.

Litigation filed against RWAY or the Company in connection with the Mergers could result in substantial costs and could delay or prevent the Mergers from being completed.

From time to time, RWAY and the Company may be subject to legal actions, including securities class action lawsuits and derivative lawsuits, as well as various regulatory, governmental and law enforcement inquiries, investigations and subpoenas in connection with the Mergers.

These or any similar securities class action lawsuits and derivative lawsuits, regardless of their merits, may result in substantial costs and divert management time and resources.

For example, in March 2026, purported individual shareholders filed complaints against the Company in two separate cases in New York state court in connection with the Mergers.

For more information, see Item 3 " Legal Proceedings ." An adverse judgment in such cases could have a negative impact on the liquidity and financial condition of RWAY, the Company or the combined company following the Mergers or could prevent the Mergers from being completed.

The Mergers may trigger certain “change of control” provisions and other restrictions in our contracts, and the failure to obtain any required consents or waivers could adversely impact the combined company.

Certain our agreements or those of our affiliates may require by their terms the consent or waiver of one or more counterparties in connection with the Mergers.

The failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or our obligations under, any such agreement because the Mergers or other transactions contemplated by the Merger Agreement may violate an anti-assignment, change of control or similar provision relating to any of such transactions.

If this occurs, RWAY may have to seek to replace that agreement with a new agreement or seek an amendment to such agreement.

Neither we nor RWAY can assure you that RWAY will be able to replace or amend any such agreement on comparable terms or at all.

If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of the combined company following the Mergers, including preventing RWAY from operating a material part of our business.

In addition, the consummation of the Mergers may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain of our agreements.

Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following completion of the Mergers.

The shares of RWAY common stock to be received by our stockholders as a result of the Mergers will have different rights associated with them than our shares of common stock currently held by them.

The rights associated with our common stock are different from the rights associated with RWAY common stock.

See the section entitled “ Comparison of RWAY and SWK Stockholder Rights ” on our joint proxy statement/prospectus filed with the SEC on February 27, 2026.

Our stockholders may receive a form or combination of consideration different from what they elect.

Each holder of our common stock is entitled to make an election (an “Election”) to receive, with respect to all or any portion of such shares held by such holder, the Per Share Cash Consideration (as defined the Merger Agreement).

With respect to each share held by a record holder of shares of our common stock with respect to which such holder does not make an Election, such holder will receive the Per Share Stock Consideration;

provided, that with respect to any record holder of shares of our common stock who at the record date who does not make an Election with respect to any shares held by such holder (such holder, a “Non-Election Holder”), such holder will have been deemed to have made an Election with respect to a percentage of the total shares of our common stock held by such Non-Election Holder equal to a number, the numerator of which will be the Aggregate Cash Consideration (as defined and calculated in accordance with the Merger Agreement), and the denominator of which will be the Closing Company Net Asset Value (as defined the Merger Agreement).

If, after giving effect to the Elections, the aggregate number of shares of RWAY common stock to be issued by RWAY in the First Merger (the “Proposed Aggregate Stock Issuance Amount”) exceeds the Total Stock Consideration (as defined and calculated in accordance with the Merger Agreement), then the number of non-electing shares will be reduced (without any action on the part of any holder of our common stock) by converting non-electing shares into electing shares until the Proposed Aggregate Stock Issuance Amount is equal to the Total Stock Consideration (determined on a whole-share basis).

Any such reduction in the number of non-electing shares shall be applied among all stockholders, pro rata based on the aggregate number of non-electing shares held by each such stockholder in proportion to the total number of non-electing shares.

If, after giving effect to the Elections, the aggregate amount of cash (excluding, for the avoidance of doubt, cash in lieu of fractional shares) to be issued by RWAY in the First Merger (excluding, for the avoidance of doubt, the Guaranteed Cash Payment (the “Proposed Cash Consideration”)) exceeds the Aggregate Cash Consideration, then the number of electing shares shall be reduced (without any action on the part of any holder of our common stock) by converting electing shares into non-electing shares until the Proposed Cash Consideration is equal to the Aggregate Cash Consideration (determined on a whole-share basis).

Any such reduction in the number of electing shares shall be applied among all stockholders, pro rata based on the aggregate number of electing shares held by each such stockholder in proportion to the total number of electing shares.

The market price of RWAY common stock will continue to fluctuate after the Mergers.

Upon completion of the Mergers and subject to our stockholder’s election, our stockholders will become holders of RWAY common stock.

The market price of the common stock of the combined company may continue to fluctuate, potentially significantly, following completion of the Mergers, including for the reasons described above.

As a result, our former stockholders could lose some or all of the value of their investment in RWAY common stock.

In addition, any significant price or volume fluctuations in the stock market generally could have a material adverse effect on the market for, or liquidity of, the RWAY common stock received in the Mergers, regardless of the combined company’s actual operating performance.

The fair value of our investments may not align with the figures reported in the pro forma filings by RWAY or in our Proxy Statement filed on March 3, 2026

We do not calculate or report NAV in the manner of a Business Development Company (“BDC”) or Investment Company.

All of the figures reported in RWAY’s filings with the SEC portfolio or in our definitive proxy statement filed with the SEC on March 3, 2026 with respect to us and our investments were prepared solely for purposes of the financial analyses described therein or the disclosure obligations applicable to RWAY as an investment company and are not a substitute for the GAAP metrics used by us historically or in this Annual Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors