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Item 1. Financial Statements

2021-05-17 compared with 2020-11-13 · 595 added, 936 removed, 366 unchanged (81% of the section changed)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands,

except par value and share data)

September 30,

FINANCIAL STATEMENTS

HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

Current assets:

6 unchanged sentences

Marketable investments

Investment in TRT

Deferred tax asset, net

3 unchanged sentences

Other non-current assets

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS EQUITY

Current liabilities:

Accounts payable and accrued liabilities

Revolving credit facility

Total current liabilities

Contingent consideration payable

Warrant liability

Other non-current liabilities

1 unchanged sentence

Commitments and contingencies (Note 8)

Stockholders’

Stockholders equity:

Preferred stock, $0.001 par value;

5,000,000 shares authorized;

no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Common stock, $0.001 par value;

250,000,000 shares authorized;

12,782,151 and 12,917,348 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

12,795,607 and 12,792,586 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

See accompanying

notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands,

except per share data)

Total stockholders equity

Total liabilities and stockholders equity

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Finance receivables interest income, including fees

2 unchanged sentences

Costs and expenses:

Provision for credit losses

Impairment expense

1 unchanged sentence

Pharmaceutical manufacturing, research and development expense

Change in fair value of acquisition-related contingent consideration

Depreciation and amortization expense

1 unchanged sentence

Total costs and expenses

Other (expense) income, net

Other income (expense), net

Unrealized net gain (loss) on warrants

Unrealized net (loss) gain on equity securities

Income before provision (benefit) for income taxes

Provision (benefit) for income taxes

Consolidated net income

Net income per share

Unrealized net gain (loss) on equity securities

Income (loss) before provision for income taxes

Provision for income taxes

Consolidated net income (loss)

Net income (loss) per share

Weighted Average Shares

See accompanying

notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Consolidated net income

Other comprehensive income, net of tax

Comprehensive income

See accompanying

notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands,

except share data)

Nine Months Ended September 30, 2020

Stockholders’

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except share data)

Three Months Ended March 31, 2021

Additional Paid-

Stockholders

Balances at December 31, 2020

2 unchanged sentences

Issuance of common stock

Repurchases of common stock in open market

Balances at March 31, 2021

Stock-based compensation

Issuance of common stock in payment of employee cash bonuses

Issuance of common stock

Repurchases of common stock in open market

Balances at June 30, 2020

Stock-based compensation

Issuance of common stock

Repurchases of common stock in open market

Balances at September 30, 2020

$ (4,187,036 )

Nine Months Ended September 30, 2019

Stockholders’

Three Months Ended March 31, 2020

Additional Paid-

Stockholders

Balances at December 31, 2019

4 unchanged sentences

Balances at March 31, 2020

Stock-based compensation

Issuance of common stock

Repurchases of common stock in open market

Balances at June 30, 2019

Stock-based compensation

Issuance of common stock

Repurchases of common stock in open market

Balances at September 30, 2019

$ (4,200,287 )

See accompanying

notes to the unaudited condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Consolidated net income

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan credit losses

Consolidated net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Impairment expense

3 unchanged sentences

Change in fair value of equity securities

Change in fair value of acquisition-related contingent consideration

Loan discount amortization and fee accretion

1 unchanged sentence

Stock-based compensation

Interest income in excess of cash received

Depreciation and amortization expense

4 unchanged sentences

Cash flows from investing activities:

Acquisition of business, net of cash acquired

Investment in equity securities

1 unchanged sentence

Repayment of finance receivables

Corporate debt security principal payments

Corporate debt securities principal payment

Purchases of property and equipment

1 unchanged sentence

Cash flows from financing activities:

Net (payments) proceeds from credit facility

Repurchases of common stock, including fees and expenses

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

See accompanying

notes to the unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SWK Holdings Corporation and Summary of Significant Accounting Policies

of Operations

Holdings Corporation (the “Company”) was incorporated in July 1996 in California and reincorporated in Delaware in

September 1999.

Holdings Corporation (the Company) was incorporated in July 1996 in California and reincorporated in Delaware in September

In July 2012, the Company commenced its strategy of building a specialty finance and asset management business.

In August 2019, the Company commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual

property licensing business.

The Company’s operations comprise two reportable segments:

“Finance Receivables”

and “Pharmaceutical Development.”

The Company allocates capital to each segment in order to generate income through

the sales of life science products by third parties.

The Company is headquartered in Dallas, Texas, and as of September 30, 2020,

the Company had 32 employees.

Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important

In August 2019,

the Company commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing

The Companys operations comprise two reportable segments:

Finance Receivables and Pharmaceutical

Development. The Company allocates capital to each segment in order to generate income through the sales of life science products

by third parties.

The Company is headquartered in Dallas, Texas, and as of March 31, 2021, the Company had 34 employees.

Company has net operating loss carryforwards (NOLs) and believes that the ability to utilize these NOLs is an important

and substantial asset.

However, at this time, under current law, the Company does not anticipate that the Finance Receivables

and Pharmaceutical Development segments will generate sufficient income to permit the Company to utilize all of its NOLs prior

to their respective expiration dates.

As such, it is possible that the Company might pursue additional strategies that it believes

might result in the ability to utilize more of the NOLs.

of November 10, 2020, and since inception of the strategy, the Company and its partners have executed transactions with 38

different parties under its specialty finance strategy, funding an aggregate $550.4 million in various financial products across

the life science sector.

The Company’s portfolio includes senior and subordinated debt backed by royalties and synthetic

royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and

related intellectual property.

However, at this time, under current law, the Company does not anticipate that the Finance Receivables and/or

Pharmaceutical Development segments will generate sufficient income to permit the Company to utilize all of its NOLs prior to their respective

expiration dates.

As such, it is possible that the Company might pursue additional strategies that it believes might result in the ability

to utilize more of the NOLs.

of May 10, 2021, the Company and its partners have executed transactions with 42 different parties under its specialty finance strategy,

funding an aggregate $587 million in various financial products across the life science sector.

The Companys portfolio includes

senior and subordinated debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased

royalties generated by sales of life science products and related intellectual property.

August 26, 2019, the Company commenced its Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc.

(“Enteris”), which is a wholly-owned subsidiary of the Company.

is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug

Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug

delivery technologies, the Peptelligence®

Since its founding in 2013, Enteris has advanced multiple internal and

external programs leveraging Peptelligence®, which enables the oral delivery of molecules that are typically injected, including

peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation.

Since its founding in 2013, Enteris has advanced multiple internal and external

programs leveraging Peptelligence®, which enables the oral delivery of molecules that are typically injected, including peptides

and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation.

Peptelligence®

unique multifaceted approach to increase the solubility and absorption of peptides and small molecules, addressing the complex

challenges regarding solubility and permeability of therapeutics with low oral bioavailability.

utilizes a unique multifaceted

approach to increase the solubility and absorption of peptides and small molecules, addressing the complex challenges regarding solubility

and permeability of therapeutics with low oral bioavailability.

Peptelligence®

by an extensive patent estate that extends until 2036.

Basis of Presentation

and Principles of Consolidation

Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in

(“GAAP”).

The consolidated financial statements include the accounts of all subsidiaries and affiliates in

which the Company holds a controlling financial interest as of the financial statement date.

Normally a controlling financial

interest reflects ownership of a majority of the voting interests.

The Company consolidates a variable interest entity (“VIE”)

when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and

the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the

right to receive benefits from the VIE that could potentially be significant to the VIE, after elimination of intercompany accounts

and transactions.

is protected by an extensive patent estate that extends

of Presentation and Principles of Consolidation

Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United

The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling

financial interest as of the financial statement date.

Normally a controlling financial interest reflects ownership of a majority of

the voting interests.

The Company consolidates a variable interest entity (VIE) when it possesses both the power to direct

the activities of the VIE that most significantly impact its economic performance and the Company is either obligated to absorb the losses

that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially

be significant to the VIE, after elimination of intercompany accounts and transactions.

Company owns interests in various partnerships and limited liability companies, or LLCs.

The Company consolidates its investments

in these partnerships or LLCs, where the Company, as the general partner or managing member, exercises effective control, even

though the Company’s ownership may be less than 50 percent, the related governing agreements provide the Company with broad

powers, and the other parties do not participate in the management of the entities and do not effectively have the ability to

remove the Company.

The Company has reviewed each of the underlying agreements to determine if it has effective control.

If circumstances

change and it is determined this control does not exist, any such investment would be recorded using the equity method of accounting.

Although this would change individual line items within the Company’s consolidated financial statements, it would have no

effect on its operations and/or total stockholders’

equity attributable to the Company.

The Company consolidates its investments in

these partnerships or LLCs, where the Company, as the general partner or managing member, exercises effective control, even though the

Companys ownership may be less than 50 percent, the related governing agreements provide the Company with broad powers, and the

other parties do not participate in the management of the entities and do not effectively have the ability to remove the Company.

Company has reviewed each of the underlying agreements to determine if it has effective control.

If circumstances change and it is determined

this control does not exist, any such investment would be recorded using the equity method of accounting.

Although this would change

individual line items within the Companys consolidated financial statements, it would have no effect on its operations and/or

total stockholders equity attributable to the Company.

Interim Financial Information

1 unchanged sentence

that, in the opinion of management, are necessary for a fair presentation of the interim financial information.

The results of

operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter

or for the year ending December 31, 2020.

Certain information and footnote disclosures normally included in financial statements

prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange

Commission (“SEC”).

These unaudited condensed consolidated financial statements and notes included herein should be

read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report

on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020.

Reclassification

prior year amounts have been reclassified to conform to current year presentation.

The amounts for prior periods have been reclassified

to be consistent with current year presentation and have no impact on previously reported total assets, total stockholders’

equity or net income.

preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates

and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements

and the reported amounts of revenues and expenses during the reporting period.

Significant estimates and assumptions are required

in the determination of revenue recognition;

The results of operations

for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the

year ending December 31, 2021.

Certain information and footnote disclosures normally included in financial statements prepared in accordance

with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (SEC).

These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited

consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31,

2020, filed with the SEC on March 31, 2021.

preparation of the Companys consolidated financial statements in conformity with GAAP requires the Company to make estimates and

assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported

amounts of revenues and expenses during the reporting period.

Significant estimates and assumptions are required in the determination

of revenue recognition;

stock-based compensation;

valuation of accounts receivable;

impairment of finance

impairment of finance receivables;

long-lived assets;

property, plant and equipment;

property and equipment;

intangible assets;

valuation of warrants;

consideration;

valuation of warrants and other investments;

contingent consideration;

income taxes;

and contingencies and litigation, among others.

Some of these judgments can be subjective and complex,

and consequently, actual results may differ from these estimates.

The Company’s estimates often are based on complex judgments,

probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable.

For any given

individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.

Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic

As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions

may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause changes to those

estimates and assumptions.

Market conditions, such as illiquid credit markets, health crises such as the COVID-19 global pandemic,

volatile equity markets, and economic downturns, can increase the uncertainty already inherent in the Company’s estimates

and assumptions.

The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change.

Those changes generally will be reflected in our consolidated financial statements on a prospective basis unless they are required

to be treated retrospectively under the relevant accounting standard.

It is possible that other professionals, applying reasonable

judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Some of these judgments can be subjective and complex, and consequently, actual results

may differ from these estimates.

The Companys estimates often are based on complex judgments, probabilities and assumptions that

it believes to be reasonable but that are inherently uncertain and unpredictable.

For any given individual estimate or assumption made

by the Company, there may also be other estimates or assumptions that are reasonable.

Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment.

As future events and their effects cannot be determined with precision, the Companys estimates and assumptions may prove to be

incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause changes to those estimates and assumptions.

Market conditions, such as illiquid credit markets, health crises such as the COVID-19 global pandemic, volatile equity markets, and

economic downturns, can increase the uncertainty already inherent in the Companys estimates and assumptions.

The Company adjusts

its estimates and assumptions when facts and circumstances indicate the need for change.

Those changes generally will be reflected in

our consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant

accounting standard.

It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could

develop and support a range of alternative estimated amounts.

Company earns revenues from its two U.S.-based business segments:

its specialty finance and asset management business offering

customized financing solutions to a broad range of life-sciences companies, and as of August 26, 2019, the Company’s business

offering oral therapeutic formulation solutions built around Enteris’

pharmaceutical Peptelligence®

platform, which

enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules

in an enteric-coated tablet formulation.

financial results of Enteris are included in the Pharmaceutical Development segment as of the acquisition date.

Company’s Pharmaceutical Development segment enters into collaboration and licensing agreements with strategic partners,

under which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third

its specialty finance and asset management business offering customized

financing solutions to a broad range of life-sciences companies, and its business offering oral therapeutic formulation solutions built

around Enteris pharmaceutical Peptelligence®

platform, which enables the oral delivery of molecules that are typically injected,

including peptides and BCS Class II, III, and IV small molecules in an enteric-coated tablet formulation.

Companys Pharmaceutical Development segment enters into collaboration and licensing agreements with strategic partners, under

which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third parties.

The terms of these arrangements typically include payment to the Company of one or more of the following:

non-refundable,

upfront license fees;

non-refundable, upfront license

reimbursement of certain costs;

customer option exercise fees;

development, regulatory and commercial milestone

and royalties on net sales of licensed products.

development, regulatory and commercial milestone payments;

and royalties

on net sales of licensed products.

revenue includes amounts that have been billed per the contractual terms but have not been recognized as revenue.

classifies as current the portion of deferred revenue that is expected to be recognized within one year from the balance sheet

Deferred revenue was $0.5 million and $0.1 million as of September 30, 2020 and December 31, 2019, respectively, and is

included in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

The Company classifies

as current the portion of deferred revenue that is expected to be recognized within one year from the balance sheet date and is included

in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

and Development

and development expenses include the costs associated with internal research and development and research and development conducted

for the Company by third parties.

These costs primarily consist of salaries, pre-clinical and clinical trials, outside consultants,

and supplies.

and development expenses include the costs associated with internal research and development and research and development conducted for

the Company by third parties.

These costs primarily consist of salaries, pre-clinical and clinical trials, outside consultants, and supplies.

All research and development costs discussed above are expensed as incurred.

Third-party expenses reimbursed under

research and development contracts, which are not refundable, are recorded as a reduction to pharmaceutical manufacturing research

and development expense in the unaudited condensed consolidated statements of operations.

Recent Accounting Pronouncements

March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2020-04, “Reference Rate Reform (Topic 848),”

which provides optional guidance for a limited period of time to ease

the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria

These transactions include:

(i) contract modifications, (ii) hedging relationships, and (iii) sales or transfers of debt

securities classified as held-to-maturity.

Third-party expenses reimbursed under research and development

contracts, which are not refundable, are recorded as a reduction to pharmaceutical manufacturing research and development expense in

the consolidated statements of income.

Accounting Pronouncements

March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04,

Reference Rate Reform (Topic 848), which provides optional guidance for a limited period of time to ease the potential

burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

ASU 2020-04 provides optional

expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met.

These transactions

(i) contract modifications, (ii) hedging relationships, and (iii) sales or transfers of debt securities classified as held-to-maturity.

ASU 2020-04 is effective from March 12, 2020 through December 31, 2022.

An entity may

elect to adopt the amendments for contract modifications as of any date from the beginning of an interim period that includes

or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March

12, 2020, up to the date that the financial statements are available to be issued.

An entity may elect to apply the amendments

in ASU 2020-04 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020

and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

The one-time election to sell, transfer, or both sell and transfer debt securities classified as held-to-maturity may be made

at any time after March 12, 2020 but no later than December 31, 2022.

The Company expects that it will elect to apply some of

the expedients and exceptions provided in ASU 2020-04;

however, the Company is still evaluating the guidance, and therefore, the

impact of the adoption of ASU 2020-04 on the Company’s financial condition and results of operations has not yet been determined.

June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).”

This standard adds an

impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather

than incurred losses.

Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses, which

the FASB believes will result in more timely recognition of losses.

This ASU describes the impairment allowance as a valuation

account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount

expected to be collected on the financial asset.

Credit losses relating to available-for-sale debt securities should be measured

in a manner similar to current GAAP;

however, the amendments in this update require that credit losses be presented as an allowance

rather than as a write-down, which will allow an entity the ability to record reversals of credit losses in current period net

On November 15, 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives

and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates,”

which finalized various effective date delays for private

companies, not-for-profit organizations, and certain smaller reporting companies.

Under ASU 2019-10, the effective date for implementation

of CECL for smaller reporting companies was extended to fiscal years, and interim periods within those years, beginning after

December 15, 2022.

The Company is currently evaluating the new guidance but believes it is likely to incur more upfront losses

on its portfolio under the new CECL model.

Net Income per

net income per share is computed using the weighted-average number of outstanding shares of common stock.

Diluted net income per

share is computed using the weighted-average number of outstanding shares of common stock, and when dilutive, shares of common

stock issuable upon exercise of options and warrants deemed outstanding using the treasury stock method.

following table shows the computation of basic and diluted net income per share for the following periods (in thousands, except

An entity may elect to adopt the amendments for contract modifications

as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date

within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available

to be issued.

An entity may elect to apply the amendments in ASU 2020-04 to eligible hedging relationships existing as of the beginning

of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the

interim period that includes March 12, 2020.

The one-time election to sell, transfer, or both sell and transfer debt securities classified

as held-to-maturity may be made at any time after March 12, 2020 but no later than December 31, 2022.

The Company expects that it will

elect to apply some of the expedients and exceptions provided in ASU 2020-04;

however, the Company is still evaluating the guidance,

and therefore, the impact of the adoption of ASU 2020-04 on the Companys financial condition and results of operations has not

yet been determined.

June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This standard adds an impairment

model, known as the current expected credit loss (CECL) model, that is based on expected losses rather than incurred losses.

Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result

in more timely recognition of losses.

This ASU describes the impairment allowance as a valuation account that is deducted from the amortized

cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

Credit losses relating to available-for-sale debt securities should be measured in a manner similar to current GAAP;

however, the amendments

in this update require that credit losses be presented as an allowance rather than as a write-down, which will allow an entity the ability

to record reversals of credit losses in current period net income.

On November 15, 2019, the FASB issued ASU 2019-10, Financial

Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates, which finalized

various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies.

2019-10, the effective date for implementation of CECL for smaller reporting companies was extended to fiscal years, and interim periods

within those years, beginning after December 15, 2022.

The Company is currently evaluating the new guidance but believes it is likely

to incur more upfront losses on its portfolio under the new CECL model.

Net Income (Loss) per Share

net income (loss) per share is computed using the weighted average number of outstanding shares of common stock.

Diluted net income (loss)

per share is computed using the weighted average number of outstanding shares of common stock, and when dilutive, shares of common stock

issuable upon exercise of options and warrants deemed outstanding using the treasury stock method.

following table shows the computation of basic and diluted net income (loss) per share for the following periods (in thousands, except

per share amounts):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

Weighted-average shares outstanding

1 unchanged sentence

Weighted-average diluted shares

Basic net income per share

Diluted net income per share

the three months ended September 30, 2020 and 2019, outstanding stock options, restricted stock units and warrants to purchase

shares of common stock in an aggregate of approximately 409,000 and 436,000, respectively, have been excluded from the calculation

of diluted net income per share as all such securities were anti-dilutive.

For the nine months ended September 30, 2020 and 2019,

outstanding stock options, restricted stock units and warrants to purchase shares of common stock in an aggregate of approximately

455,000, and 428,000, respectively, have been excluded from the calculation of diluted net income per share as all such securities

were anti-dilutive.

Business Combinations

August 26, 2019, Enteris, a biotechnology company offering innovative formulation solutions utilizing its proprietary oral drug

delivery technology, became a wholly-owned subsidiary of the Company.

The total merger consideration was $34.6 million, which

included contingent consideration of $14.5 million, which was remeasured to $16.5 million as of September 30, 2020.

three months ended September 30, 2020, the Company recognized $2.5 million of revenue and accounts receivable related to the completion

of a milestone under the License Agreement (as defined below) with Cara Therapeutics, Inc.

(“Cara”).

Subsequent to September

30, 2020, the Company paid $1.0 million of such amount to the seller of Enteris, pursuant to earnout provisions of

the merger agreement.

The purchase price was subject to certain adjustments with respect to cash, debt, working capital, transaction

expenses and the value of the contingent consideration agreement entered into, in connection with the transaction.

to the acquisition, Enteris entered into a non-exclusive commercial license agreement with Cara (the “License

Agreement”), for oral formulation rights to Enteris’

Peptelligence®

technology to develop and commercialize Oral

KORSUVA TM in any indication worldwide, excluding South Korea and Japan.

Cara is obligated to pay Enteris certain

development, regulatory and tiered commercial milestone payments, as well as low single-digit royalties based on net sales in

the licensed territory.

acquisition was accounted for under the acquisition method of accounting.

Accordingly, the merger consideration was allocated

to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition.

of the merger consideration over the estimated fair value of the net assets of Enteris was recorded as goodwill, which consists

largely of synergies and the acquisition of intangible assets.

The resulting goodwill is not expected to be deductible for tax

following table summarizes the allocation of the merger consideration (at fair value) to the assets and liabilities of Enteris

as of August 26, 2019 (the date of acquisition) (in thousands):

Accounts receivable

Prepaid expenses and other current assets

Property and equipment

Patents and other intangible assets

Right of use operating lease asset

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Lease liability

Deferred tax liability

Total purchase price

Supplemental Pro Forma Information

The following

unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January

1, 2019, the earliest period presented herein (in thousands):

September 30,

pro forma financial information includes adjustments that are directly attributable to the business combination and are factually

The pro forma adjustments include incremental amortization and depreciation of intangible assets and property and

equipment based on preliminary values of each asset and acquisition-related expenses.

The pro forma financial information excludes

non-recurring acquisition-related expenses.

These pro forma results are illustrative only and not indicative of the actual results

of operations that would have been achieved nor are they indicative of future results of operations.

was no change in the carrying amount of goodwill from December 31, 2019 to September 30, 2020, and net book

value remains at $8.4 million.

The net book value of goodwill is solely related to the Enteris acquisition in 2019.

As of September

30, 2020, the Company concluded that it is more likely than not that fair value of the reporting unit is greater than its carrying

value, and goodwill is not considered to be impaired.

of September 30, 2020, the gross book value, accumulated amortization, net book value and estimated useful life of acquired

intangible assets were as follows (in thousands, except estimated useful life data):

As of September 30, 2020

Licensing agreement

Trade names and trademarks

Customer relationships

Deferred patent costs

Total intangibles

expense from the acquisition of Enteris was $9.4 million for the nine months ended September 30, 2020 and

was recorded in depreciation and amortization expense.

Based on amounts recorded at September 30, 2020, the Company

will recognize acquired intangible asset amortization as follows (in thousands):

2020 (remaining)

Receivables, Net

receivables are reported at their determined principal balances net of any unearned income, cumulative charge-offs and unamortized

deferred fees and costs.

Unearned income and deferred fees and costs are amortized to interest income based on all cash flows

expected using the effective interest method.

of September 30, 2020, the Company had a credit loss allowance of $8.4 million.

Of the total $8.4 million, $1.2 million and $0.6

million are associated with the Company’s Cambia®

Basic net income (loss) per share

Diluted net income (loss) per share

the three months ended March 31, 2021 and 2020, outstanding stock options and restricted stock units to purchase shares of common stock

in an aggregate of approximately 411,000 and 460,000, respectively, have been excluded from the calculation of diluted net income (loss)

per share as all such securities were anti-dilutive.

Finance Receivables, Net

receivables are reported at their determined principal balances net of any unearned income, cumulative charge-offs and unamortized deferred

fees and costs.

Unearned income and deferred fees and costs are amortized to interest income based on all cash flows expected using the

effective interest method.

of March 31, 2021 and December 31, 2020, the Company had a credit loss allowance of $8.4 million.

Of the total $8.4 million, $1.2 million

and $0.6 million are associated with the Companys Cambia®

and Besivance®

royalties, respectively.

The remaining $6.6 million is

related to the ABT Molecular Imaging, Inc.

(“ABT”), now known as Best ABT, Inc.

(“Best”), second lien term

loan that was recognized in order to reflect the Best royalty at its estimated fair value of $4.1 million.

The carrying values

of finance receivables are as follows (in thousands):

September 30,

The remaining $6.6 million

is related to the ABT Molecular Imaging, Inc.

(ABT), now known as Best ABT, Inc.

(Best), second lien term loan

that was recognized in order to reflect the Best royalty at its estimated fair value of $3.7 million.

The carrying values of finance

receivables are as follows (in thousands):

March 31, 2021

December 31, 2020

Royalty purchases

2 unchanged sentences

Total carrying value

following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in

September 30, 2020

following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands):

March 31, 2021

December 31, 2020

1 unchanged sentence

Total carrying value

of September 30, 2020 and December 31, 2019, the Company had three finance receivables in nonaccrual status:

(a) the term loan

to B&D Dental Corporation (“B&D”), with a net carrying value of $8.3 million, (b) the Best royalty, with a net

carrying value of $4.0 million and (c) the Tissue Regeneration Therapeutics, Inc.

(“TRT”) royalty, with a net carrying

value of $3.5 million.

Although in nonaccrual status, the B&D term loan and the TRT royalty were not considered impaired as

of both September 30, 2020 and December 31, 2019.

The Company collected an aggregate $0.2 million in cash on two of its nonaccrual

finance receivables during the nine months ended September 30, 2020.

(Please see B&D, Best and TRT below for further

details regarding nonaccrual and impaired finance receivables).

December 10, 2013, the Company entered into a five-year credit agreement to provide B&D a senior secured term loan with a

principal amount of $6.0 million funded upon close, net of an arrangement fee of $60,000.

The loan was scheduled to mature on

December 10, 2018.

of March 31, 2021, the Company had two finance receivables in nonaccrual status:

(1) the term loan to B&D Dental Corporation (B&D),

with a net carrying value of $8.3 million and (2) the Best royalty, with a net carrying value of $3.7 million.

nonaccrual status, the B&D term loan was not considered impaired as of March 31, 2021 and December 31, 2020.

The Company collected

$0.2 million on the Best royalty during the three months ended March 31, 2021, which was credited toward the royaltys carrying

The Company did not collect any cash on its nonaccrual royalties during the three months ended March 31, 2020.

(Please see B&D,

Best and Besivance below for further details regarding nonaccrual and impaired finance receivables).

December 10, 2013, the Company entered into a five-year credit agreement to provide B&D a senior secured term loan with a principal

amount of $6.0 million funded upon close, net of an arrangement fee of $60,000.

The loan was scheduled to mature on December 10, 2018.

Subsequently, the terms of the loan have been amended, and the Company has funded additional amounts to B&D.

As of December 31, 2019, the total amount funded was $8.3 million.

B&D is currently evaluating strategic options, including

a potential sale of the business.

is currently in default under the terms of the credit agreement, and as a result, the Company classified the loan to nonaccrual

status as of September 30, 2015.

During 2016 and 2018, the Company executed three additional amendments to the loan to advance

an additional $0.7 million in order to directly pay critical vendors and protect the value of the collateral.

The Company obtained

a third-party valuation of B&D as of September 30, 2020.

As a result of the third-party valuation and facts and circumstances

regarding B&D’s operations, the Company believes its collateral position is greater than the unpaid balance;

thus, accrued

interest has not been reversed nor has an allowance been recorded as of September 30, 2020.

October 31, 2018, ABT announced that it entered into an asset purchase agreement with Best, a wholly-owned subsidiary of Best

Medical International, Inc.

for aggregate consideration of (i) $500,000, paid over ten years in equal quarterly installments,

plus (ii) a ten percent royalty on ABT’s net sales, including any commercialized improvements made to ABT’s technology,

paid quarterly for the ten year period from closing pursuant to a royalty security agreement by and between Best and SWK Funding

LLC, a wholly-owned subsidiary of the Company (“SWK Funding”).

As of March 31, 2021,

the total amount funded was $8.3 million.

B&D is currently evaluating strategic options, including a potential sale of the business.

is currently in default under the terms of the credit agreement, and as a result, the Company classified the loan to nonaccrual status

as of September 30, 2015.

During 2016 and 2018, the Company executed three additional amendments to the loan to advance an additional

$0.7 million in order to directly pay critical vendors and protect the value of the collateral.

The Company periodically obtains third-party

valuations of B&D.

As a result of the third-party valuations and facts and circumstances regarding B&Ds operations, including

its intellectual property position, improved profitability and working capital position, the Company believes its collateral position

is greater than the unpaid balance;

thus, accrued interest has not been reversed nor has an allowance been recorded as of March 31, 2021.

October 31, 2018, ABT announced that it entered into an asset purchase agreement with Best, a wholly-owned subsidiary of Best Medical

International, Inc., for aggregate consideration of (i) $500,000, paid over ten years in equal quarterly installments, plus (ii) a ten

percent royalty on ABTs net sales, including any commercialized improvements made to ABTs technology, paid quarterly for

the ten year period from closing pursuant to a royalty security agreement by and between Best and SWK Funding LLC, a wholly-owned subsidiary

of the Company (SWK Funding).

SWK Funding will receive 100 percent of the consideration.

On November 8, 2018, the Bankruptcy Court approved the asset sale transaction, and the Company has no further funding liabilities.

During the year

ended December 31, 2018, the Company re-evaluated its collateral position, considering the expected outcome of the Chapter 11

process, and as a result, the Company recognized an impairment expense of $5.3 million to write off the second lien term loan,

as well as provision for credit losses of $5.0 million to reflect the Best royalty at its estimated fair value of $5.7 million.

the year ended December 31, 2019, the Company re-evaluated the value of the Best royalty based on 2019 business trends, and as

a result, the Company recognized a provision for credit losses of $1.6 million to reflect the Best royalty at its then estimated

fair value of $4.1 million.

June 13, 2013, the Company purchased two royalty streams from TRT derived from the licensed use of TRT’s technology in the

family cord banking services sector for $2.0 million, plus additional consideration of $1.25 million was paid on October 20, 2014

upon aggregate royalty payments reaching a certain threshold.

As of June 30, 2020, the fair value of the royalty was $3.5 million.

On August 21, 2020, the Company and TRT agreed to terminate the royalty purchase agreement in exchange for TRT issuing the Company

TRT common equity and a convertible note.

The convertible note carries no interest, can be redeemed in cash without penalty at

any time by TRT, and converts into common equity of TRT at decreasing valuations over time to induce repayment in cash.

September 30, 2020, the Company does not believe there is an impairment of the carrying value of the investment in TRT.

in corporate debt securities and equity securities at September 30, 2020 and December 31, 2019 consist of the following (in thousands):

September 30,

On November 8, 2018, the Bankruptcy

Court approved the asset sale transaction, and the Company has no further funding liabilities.

the year ended December 31, 2018, the Company re-evaluated its collateral position, considering the expected outcome of ABTs Chapter

11 process, and as a result, the Company recognized an impairment expense of $5.3 million to write off the second lien term loan, as

well as provision for credit losses of $5.0 million to reflect the Best royalty at its estimated fair value of $5.7 million.

the year ended December 31, 2019, the Company re-evaluated the value of the Best royalty based on 2019 business trends, and as a result,

the Company recognized a provision for credit losses of $1.6 million.

The estimated fair value as of March 31, 2021 is $3.7 million.

Investment in Tissue Regeneration Therapeutics, Inc.

June 13, 2013, the Company purchased royalties from Tissue Regeneration Therapeutics, Inc.

(TRT) related to its technology

licenses in the family cord banking services sector for $2.0 million, and on October 20, 2014, funded an additional $1.25 million upon

the achievement of royalty receipts-based milestones.

During the quarter ended March 31, 2016, royalty payments from the primary U.S.

licensee ended as a result of the licensee terminating a technology license.

SWK and TRT continue to evaluate both options in regard

to enforcing TRTs intellectual property rights against this licensee, as well as seeking additional U.S.

August 21, 2020, the Company and TRT agreed to terminate the royalty purchase agreement in exchange for TRT issuing the Company TRT common

equity and a convertible note.

The convertible note carries no interest, can be redeemed in cash without penalty at any time by TRT,

and converts into common equity of TRT at decreasing valuations over time to induce repayment in cash.

The convertible feature is at

the option of TRT.

of March 31, 2021, the Company does not believe there is an impairment of the carrying value of the investment in TRT.

The Company evaluated

several factors in this determination, including input from intellectual property counsel regarding the strength of the related intellectual

property, advancements with TRTs intellectual property estate and technology license agreements generally, continued receipt of

Canadian licensee royalty payments and a third party valuation of the Companys investment in TRT.

As of March 31, 2021, there

were no adjustments to the carrying amount of $3.5 million.

Marketable Investments

in available-for-sale corporate debt securities and equity securities as of March 31, 2021 and December 31, 2020 consist of the following

(in thousands):

Corporate debt securities

1 unchanged sentence

Total marketable investments

amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale

debt securities as of September 30, 2020 and December 31, 2019, are as follows (in thousands):

September 30, 2020

Corporate debt securities

amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale corporate

debt securities as of March 31, 2021 and December 31, 2020, are as follows (in thousands):

March 31, 2021

December 31, 2020

Corporate debt securities

following table presents unrealized net gains and losses on equity securities during the three and nine months ended September

30, 2020 and 2019 (in thousands):

following table presents unrealized net income (loss) on equity securities during the three months ended March 31, 2021 and 2020 (in

Three Months Ended

September 30,

Nine Months Ended

September 30,

Unrealized net (loss) gain on equity securities reflected in the unaudited condensed consolidated statements of income

Equity Securities

of September 30, 2020, the Company’s equity securities include 96,810 shares of Misonix, Inc.

(“Misonix”) common

stock received pursuant to Misonix’s purchase of Solsys Medical, Inc.

(“Solsys”) on September 27, 2019.

the three months ended September 30, 2019 and prior to the acquisition, the Company exercised its Solsys warrants in a cashless

transaction to purchase Solsys preferred stock and exercised its preemptive right to protect against dilution of its Solsys equity

Of the total 109,472 shares of Misonix common stock received for its Solsys equity interests, 12,662 shares are held

in escrow by Misonix, are subject to reduction based on terms of the acquisition agreement, and any shares remaining at the end

of the escrow period will be released within 15 to 18 months post closing of the acquisition.

The 96,810 shares were subject to

a one year lock-up that expired on September 27, 2020.

As of September 30, 2020, the 96,810 shares of Misonix common stock are

reflected at their estimated fair value of $1.1 million.

Debt Securities

July 9, 2013, the Company entered into a note purchase agreement to purchase, at par, $3.0 million of a total of $100.0 million

aggregate principal amount of senior secured notes due in November 2026.

The agreement allows the first interest payment

date to include paid-in-kind notes for any cash shortfall, of which the Company received $0.1 million on November 15, 2013.

notes are secured only by certain royalty and milestone payments associated with the sales of pharmaceutical products.

secured notes have been placed on non-accrual status as of June 30, 2016.

Total cash collected during the nine months ended

September 30, 2020 and 2019 was $49,000 and $48,000, respectively, which was credited to the notes’

carrying value.

the nine months ended September 30, 2020, impairment expense of $0.2 million was recognized in order to reflect the notes at their

estimated fair value of $0.3 million.

The notes are included in long-term marketable investments in the unaudited condensed consolidated

balance sheets.

Credit Facility

June 29, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with State Bank and Trust

Company as a lender and the administrative agent (“State Bank”) pursuant to which State Bank provides the Company

with up to a $20 million revolving senior secured credit facility, which the Company can draw down and repay until maturity, subject

to borrowing base eligibility.

The Loan Agreement matures on June 29, 2021.

Loan Agreement accrues interest at the Daily LIBOR Rate, with a floor of 1.00 percent, plus a 3.25 percent margin and principal

is repayable in full at maturity.

Interest is generally required to be paid monthly in arrears.

The Loan Agreement requires the

payment of an unused line fee of 0.50 percent, which will be recorded as interest expense.

The Company paid $0.5 million in fees

at closing, which have been capitalized as deferred financing costs and are being amortized on a straight-line basis over the

term of the Loan Agreement.

Loan Agreement has an advance rate against the Company’s finance receivables portfolio, including 85 percent against senior

first lien loans, 70 percent against second lien loans and 50 percent against royalty receivables, subject to certain eligibility

requirements as defined in the Loan Agreement.

The Loan Agreement contains certain affirmative and negative covenants including

minimum asset coverage and minimum interest coverage ratios.

the nine months ended September 30, 2020 and 2019, the Company recognized $0.4 and $0.3 million, respectively, of interest expense.

On March 17, 2020, the Company drew $15.0 million on its revolving credit facility in order to support existing business partners

and to finance future investment opportunities.

The line of credit was repaid by August 17, 2020.

As of September 30, 2020, no

amount was outstanding under the revolving credit facility, and $20.0 million was available for borrowing.

Party Transactions

September 6, 2013, in connection with entering into a credit facility, the Company issued warrants to an affiliate of a stockholder,

Carlson Capital, L.P.

(the “Stockholder”), for 100,000 shares of the Company’s common stock at a strike price

of $13.88 per share.

The warrants had a price anti-dilution mechanism that was triggered by the price that shares were sold by

the Company in a rights offering in 2014, and as a result, the strike price of the warrants was reduced to $13.48 per share.

warrants expired on September 6, 2020.

Company determined the fair value of the warrants as of December 31, 2019 using the Black-Scholes option pricing model with the

following assumptions:

Dividend rate

Risk-free rate

Expected life (years)

Expected volatility

changes on the value of the warrant liability during the nine months ended September 30, 2020 were as follows (in thousands):

Fair value –

Unrealized net income (loss) on equity securities reflected in the unaudited condensed consolidated statements of income (loss)

Goodwill and Intangible Assets

was no change in the carrying amount of goodwill from December 31, 2020 to March 31, 2021, and net book value remains at $8.4 million.

The net book value of goodwill is solely related to the Enteris acquisition in 2019.

As of March 31, 2021, the Company concluded that

it is more likely than not that fair value of the reporting unit is greater than its carrying value, and goodwill is not considered to

following table summarizes the components of gross intangible assets, accumulated amortization and net intangible asset balances as of

March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

December 31, 2020

Changes in fair value

Fair value –

September 30, 2020

Licensing Agreement (1)

Trade names and trademarks

Customer relationships

Deferred patent costs

Total intangible assets

to the acquisition, Enteris entered into a non-exclusive commercial license agreement (the License Agreement) with Cara Therapeutics,

(Cara), for oral formulation rights to Enteris Peptelligence®

technology to develop and commercialize Oral

KORSUVA TM in any indication worldwide, excluding South Korea and Japan.

Cara is obligated to pay Enteris certain development,

regulatory and tiered commercial milestone payments, as well as low single-digit royalties based on net sales in the licensed territory.

expense related to intangible assets was $1.6 million and $3.4 million for the three months ended March 31, 2021 and 2020, respectively.

estimated future amortization expense related to intangible assets as of March 31, 2021 is as follows (in thousands):

Remainder of 2021

2026 and thereafter

Revolving Credit Facility

June 29, 2018, the Company entered into a Loan and Security Agreement (the Loan Agreement) with State Bank and Trust Company

as a lender and the administrative agent (State Bank) pursuant to which State Bank provides the Company with up to a $20.0

million revolving senior secured credit facility, which the Company can draw down and repay until maturity, subject to borrowing base

Loan Agreement accrues interest at the Daily LIBOR Rate, with a floor of 1.00 percent, plus a 3.25 percent margin and principal is repayable

in full at maturity.

Interest is generally required to be paid monthly in arrears.

The Loan Agreement requires the payment of an unused

line fee of 0.50 percent, which is recorded as interest expense.

The Company paid $0.5 million in fees at closing, which have been capitalized

as deferred financing costs and are being amortized on a straight-line basis over the term of the Loan Agreement.

Loan Agreement has an advance rate against the Companys finance receivables portfolio, including 85 percent against senior first

lien loans, 70 percent against second lien loans and 50 percent against royalty receivables, subject to certain eligibility requirements

as defined in the Loan Agreement.

The Loan Agreement contains certain affirmative and negative covenants including minimum asset coverage

and minimum interest coverage ratios.

both the three months ended March 31, 2021 and 2020, the Company recognized $0.1 million of interest expense.

As of March 31, 2021,

$11.2 million was outstanding under the revolving credit facility, and $8.8 million was available for borrowing.

The credit facility

was paid off subsequent to quarter ended March 31, 2021, and $20.0 was available for borrowing as of May 10, 2021.

Agreement matures on June 30, 2021;

however, the Company has the option to extend the maturity date by 90 days.

continues to explore other options with respect to a new credit facility.

Commitments and Contingencies

of September 30, 2020, the Company’s unfunded commitments were as follows (in millions):

eTon Pharmaceuticals, Inc.

Consideration

Company recorded contingent consideration related to the August 2019 acquisition of Enteris and sharing of certain milestone and royalties

due to Enteris pursuant to the License Agreement (please refer to Note 6 for further details on the License Agreement).

Contingent consideration

is remeasured to fair value at each reporting date until the contingency is resolved, with changes in the estimated fair value recognized

As of March 31, 2021, the estimated fair value of the contingent consideration was $16.9 million.

The Company did not recognize

a change in the estimated fair value of its contingent consideration for the three months ended March 31, 2021.

of March 31, 2021, the Companys unfunded commitments were as follows (in millions):

Sincerus Pharmaceuticals, Inc.

Total unfunded commitments

unfunded commitments are contingent upon reaching an established revenue threshold or other performance metrics on or before a

specified date or period of time per the terms of the royalty purchase or credit agreements, and in the case of loan transactions,

of May 10, 2021, aggregate unfunded commitments increased to $3.9 million due to SWK Funding entering into a synthetic royalty agreement

with Ideal Implant, Inc.

(Ideal) on April 27, 2021 (please refer to Note 12 for further details on SWK Fundings royalty

agreement with Ideal).

Unfunded commitments are contingent upon reaching an established revenue threshold or other performance metrics

on or before a specified date or period of time per the terms of the royalty purchase or credit agreements, and in the case of loan transactions,

are only subject to being advanced as long as an event of default does not exist.

Stockholders’

Compensation Plans

the nine months ended September 30, 2020 and 2019, the Company’s Board of Directors (the “Board”) approved compensation

for Board services by granting 13,595 and 10,069 shares, respectively, of common stock as compensation for the non-employee directors.

During the nine months ended September 30, 2020 and 2019, the Company recorded approximately $0.3 million and $0.1 million, respectively,

in Board stock-based compensation expense.

The aggregate stock-based compensation expense, including the quarterly Board grants,

recognized by the Company for the nine months ended September 30, 2020 and 2019 was $0.5 million and $0.3 million, respectively.

the nine months ended September 30, 2020, the Company issued 5,200 shares of its common stock valued at $0.1 million to two of

its employees as partial payment in lieu of cash for their 2019 bonuses.

Share Repurchase

December 21, 2018, September 5, 2019 and March 26, 2020, the Board authorized share repurchase programs, which are more fully

described in Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds .

The March 26, 2020 share repurchase

program expired on September 30, 2020.

Fair Value Measurements

Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis.

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date (exit price).

Fair value is the price

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date (exit price).

GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value.

The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and

the lowest priority to data lacking transparency (i.e., unobservable inputs).

An instrument’s categorization within the

fair value hierarchy is based on the lowest level of significant input to its valuation.

The following is a description of the

three hierarchy levels.

Level 1 Unadjusted

value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority

to data lacking transparency (i.e., unobservable inputs).

An instruments categorization within the fair value hierarchy is based

on the lowest level of significant input to its valuation.

The following is a description of the three hierarchy levels.

quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and

volume to provide pricing information on an ongoing basis.

Level 2 Quoted

markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to

provide pricing information on an ongoing basis.

prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full

2 unchanged sentences

prices for identical or similar assets or liabilities in inactive markets.

3 Unobservable inputs are not corroborated by market data.

This category is comprised of financial and non-financial assets and

liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that

are generally less readily observable from objective sources.

inputs are not corroborated by market data.

This category is comprised of financial and non-financial assets and liabilities whose

fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily

observable from objective sources.

into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred.

no transfers between any levels during the nine months ended September 30, 2020.

There were no transfers

between any levels during the three months ended March 31, 2021.

following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying

unaudited condensed consolidated financial statements and the related market or fair value.

The disclosures include financial

instruments and derivative financial instruments, other than investment in affiliates.

are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the

valuation models, key inputs to those models and significant assumptions utilized.

Cash and cash equivalents

The carrying amounts

reported in the balance sheet for cash and cash equivalents approximate those assets’

Marketable Investments

Certain common

equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices).

fair values of finance receivables are estimated using discounted cash flow analyses, using market rates at the balance sheet

date that reflect the credit and interest rate-risk inherent in the finance receivables.

Projected future cash flows are calculated

based upon contractual maturity or call dates, projected repayments and prepayments of principal.

These receivables are classified

Finance receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected

The disclosures include financial instruments

and derivative financial instruments, other than investment in affiliates.

are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation

models, key inputs to those models and significant assumptions utilized.

and cash equivalents

carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets fair values.

common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices).

fair values of finance receivables are estimated using discounted cash flow analyses, using market rates at the balance sheet date that

reflect the credit and interest rate-risk inherent in the finance receivables.

Projected future cash flows are calculated based upon

contractual maturity or call dates, projected repayments and prepayments of principal.

These receivables are classified as Level 3.

receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected below.

Consideration

Company recorded contingent consideration related to the August 2019 acquisition of Enteris and sharing of certain milestone and

royalties due to Enteris pursuant to the License Agreement.

Please refer to Note 3, Business Combinations , for further

details on the Company’s acquisition of Enteris and contingent consideration.

fair value measurements of the contingent consideration obligations and the related intangible assets arising from business combinations

Company recorded contingent consideration related to the August 2019 acquisition of Enteris and sharing of certain milestone and royalties

due to Enteris pursuant to the License Agreement (please refer to Notes 6 and 8 for further details on the License Agreement and contingent

consideration, respectively).

fair value measurements of contingent consideration obligations arising from business combinations

are classified as Level 3 estimates under the fair value hierarchy as these items have been valued using unobservable inputs.

These inputs include:

(a) the estimated amount and timing of projected cash flows;

(b) the probability of the achievement of the

factors on which the contingency is based;

and (c) the risk-adjusted discount rate used to present value the probability-weighted

Changes in fair value of this obligation are recorded as income or expense within operating income in our condensed

consolidated statements of operations.

Significant increases or decreases in any of those inputs in isolation could result in

a significantly lower or higher fair value measurement.

of September 30, 2020 and December 31, 2019, the Company’s contingent consideration was recorded at its estimated fair value of

$16.5 million and $14.5 million, respectively.

(b) the probability of the achievement of the factors on which

the contingency is based;

and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows.

increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

Investments and Derivative Securities

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non-exchange traded derivatives, fair value is based on option pricing models and are classified as Level 3.

following table presents financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020

(in thousands):

following table presents financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 (in

Quoted Prices

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Contingent consideration payable

Warrant liability

changes on the value of the warrant assets during the nine months ended September 30, 2020 were as follows (in thousands):

changes in fair value of the warrant assets during the three months ended March 31, 2021 were as follows (in thousands):

Fair value –

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Fair value –

September 30, 2020

March 31, 2021

Company holds warrants issued to the Company in conjunction with certain term loan investments.

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of assumptions were used in the models to determine fair value:

Risk-free rate

Expected life

(years) range

Expected volatility

of September 30, 2020 and December 31, 2019, the Company had three royalties, Besivance®, Best, and Cambia®, that were

deemed to be impaired based on reductions in carrying values in prior periods.

March 31, 2021

December 31, 2020

Dividend rate range

Risk-free rate range

0.35% - 1.40%

0.17% to 0.65%

Expected life (years) range

Expected volatility range

64.3% - 187.9%

74.3% to 174.7%

of March 31, 2021 and December 31, 2020, the Company had three royalties, Besivance®, Best, and Cambia®, that were deemed

to be impaired based on reductions in carrying values in prior periods.

The following table presents these royalties measured

at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019 (in thousands):

at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020 (in thousands):

Quoted Prices

or Liabilities

September 30, 2020

Impaired royalties

March 31, 2021

December 31, 2020

Impaired royalties

were no liabilities measured at fair value on a nonrecurring basis as of September 30, 2020 and December 31, 2019.

were no liabilities measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020.

following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying

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The disclosures include financial

instruments and derivative financial instruments.

of September 30, 2020 (in thousands):

instruments and derivative financial instruments measured at fair value on a recurring and non-recurring basis.

of March 31, 2021 (in thousands):

Financial Assets

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Contingent consideration payable

Warrant liability

Revenue Recognition

Company’s Pharmaceutical Development segment recognizes revenues received from contracts with its customers by revenue source,

as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow.

The Company’s Finance

Receivables segment does not have any revenues received from contracts with customers.

The following table provides the contract

revenue recognized by revenue source for the three and nine months ended September 30, 2020 (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Companys Pharmaceutical Development segment recognizes revenues received from contracts with its customers by revenue source,

as the Company believes it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow.

The Companys

Finance Receivables segment does not have any revenues received from contracts with customers.

The following table provides the

contract revenue recognized by revenue source for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

Pharmaceutical Development Segment

License Agreement

Pharmaceutical Development and other

Total contract revenue

of September 30, 2020 and December 31, 2019, the Company recorded $2.7 million and $0.1 million, respectively, of accounts

receivable related to its contract revenue.

Contract Assets and Liabilities

contract liabilities represent advance consideration received from customers and are recognized as revenue when the related

performance obligation is satisfied.

The Company’s contract liabilities are presented as deferred revenues and are

included in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets (in thousands):

September 30,

Assets and Liabilities

Companys contract liabilities represent advance consideration received from customers and are recognized as revenue when the

related performance obligation is satisfied.

The Companys contract liabilities are presented as deferred revenues and are

included in accounts payable and accrued liabilities in the consolidated balance sheets (in thousands):

March 31, 2021

December 31, 2020

Pharmaceutical Development Segment

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Total contract liabilities

refer to Notes 1 and 3 for further details on the Company’s deferred revenue and License Agreement, respectively.

did not have any contract assets nor did it have any contract liabilities related to the License Agreement as of September

30, 2020 or December 31, 2019.

the three months ended March 31, 2021, the Company recognized $0.3 million of 2020 deferred revenue from satisfaction of performance

Please refer to Note 6 for further details on the Companys License Agreement.

The Company did not have any

contract assets nor did it have any contract liabilities related to the License Agreement as of March 31, 2021 or December 31,

Segment Information

financial and descriptive information is required to be provided about reportable operating segments, considering a “management

approach”

concept as the basis for identifying reportable segments.

financial and descriptive information is required to be provided about reportable operating segments, considering a management

approach concept as the basis for identifying reportable segments.

The management approach is based on the way that management

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Consequently,

the segments are evident from the structure of the Company’s internal organization, focusing on financial information that

the Company’s chief operating decision-makers use to make decisions about the Company’s operating matters.

described in Note 1, SWK Holdings Corporation and Summary of Significant Accounting Policies, the Company has determined

it has two reportable segments:

Finance Receivables and Pharmaceutical Development, and each are individually managed and provide

separate services.

Revenues by segment represent revenues earned on the services offered within each segment.

the segments are evident from the structure of the Companys internal organization, focusing on financial information that

the Companys chief executive officer uses to make decisions about the Companys operating matters.

described in Note 1, the Company has determined it has two reportable segments:

Finance Receivables and Pharmaceutical Development,

and each are individually managed and provide separate services.

Revenues by segment represent revenues earned on the services

offered within each segment.

performance is evaluated based on several factors, including income (loss) from continuing operations before income.

uses this measure of profit (loss) to evaluate segment performance because the Company believes this measure is indicative of

uses this measure of income (loss) to evaluate segment performance because the Company believes this measure is indicative of

performance trends and the overall earnings potential of each segment.

following tables present financial information for the Company’s reportable segments for the periods indicated (in thousands):

Three Months Ended September 30, 2020

following tables present financial information for the Companys reportable segments for the periods indicated (in thousands):

Three Months Ended March 31, 2021

Pharmaceutical

Other revenue

Interest expense

Pharmaceutical manufacturing, research and development expense

Depreciation and amortization

Change in fair value of acquisition-related contingent consideration

Manufacturing, research and development

Depreciation and amortization expense

General and administrative

Other income (expense), net

Benefit for income taxes

Net income (loss)

Nine months ended September 30, 2020

Other income, net

Provision for income taxes

Consolidated net income (loss)

Three Months Ended March 31, 2020

Pharmaceutical

Provision for credit losses and impairment expense

Other revenue

Provision for credit losses and impairment

Interest expense

Pharmaceutical manufacturing, research and development expense

Depreciation and amortization

Change in fair value of acquisition-related contingent consideration

Manufacturing, research and development

Depreciation and amortization expense

General and administrative

Other income (expense), net

Other expense, net

Provision for income taxes

Net income (loss)

Consolidated net income (loss)

in Holding Company and Other are the expenses of the parent holding company and certain other enterprise-wide overhead costs,

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Subsequent Events

Trio Healthcare

October 22, 2020, SWK Funding closed a royalty purchase agreement with Trio Healthcare Limited.

SWK Funding paid

$3.9 million at closing in exchange for 100 percent of royalties paid on sales of a portfolio of ancillary ostomy products

until a certain royalty cap has been received by SWK Funding.

SWK Funding is also entitled to receive a residual

royalty after the royalty cap has been achieved until the tenth anniversary of the date on which the royalty cap was achieved.

Aimmune Therapeutics,

On October 20,

2020, Aimmune Therapeutics, Inc.

April 1, 2021, SWK Funding received $6.5 million for the payoff of the Tenex Health, Inc.

term loan in connection with its sale.

The proceeds included accrued interest, proceeds from the termination of the warrant, and exit fees.

Implant, Inc.

April 27, 2021, SWK Funding closed a synthetic royalty purchase agreement with Ideal.

SWK Funding paid $3.0 million at closing

with another $2.0 available for borrowing should Ideal achieve certain milestones.

In exchange, SWK Funding will receive royalties

based on sales of implants.

April 30, 2021, Harrow Health, Inc.

repaid its term loan.

SWK Funding received approximately $9.4 million at payoff for its portion

of the term loan, which included accrued interest, a prepayment penalty and exit fees.

MANAGEMENT’S

of the term loan, which included accrued interest, prepayment and exit fees.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s

Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement

Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided as a supplement

to, and should be read in conjunction with, our audited consolidated financial statements, and the MD&A included in our Annual

Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”), as well as our unaudited condensed consolidated

Report on Form 10-K for the year ended December 31, 2020 (Annual Report), as well as our unaudited condensed consolidated

financial statements and the accompanying notes included in this report.

Considerations

December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the

world, including the United States.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic.

are subject to risks related to public health crises such as the global pandemic associated with COVID-19.

In the last two weeks

in March 2020 and through the date of this filing, our Pharmaceutical Development segment has seen a reduction in its productivity

as well as delays in receiving some of its needed supplies as a direct result of the pandemic and the impact on key vendors.

slow-down is likely to continue in the near term until such time as certain restrictions that have been imposed on us and our

suppliers are lifted.

Such events may result in business disruption and reduced revenues, any of which could materially affect

our business, financial condition and results of operations.

late-March 2020, the governor of New Jersey, where the manufacturing facility of our Pharmaceutical Development segment is located,

issued “shelter-in-place”

or “stay at home”

orders restricting non-essential activities, travel and business

operations for an indefinite period of time, subject to certain exceptions for necessary activities.

Such orders or restrictions

have resulted in our Pharmaceutical Development segment significantly reducing activities at its manufacturing facility, thereby

negatively impacting our operations.

Starting in July 2020, the governor of New Jersey began a phased re-opening of the state’s

economy, though some non-essential activities remain limited, which continues to impact operations.

We continue to monitor COVID-19

recommendations mandated by the governor’s office.

Other disruptions or potential disruptions include restrictions on our personnel

and personnel of our customers and suppliers to travel and access customers;

delays in product development efforts;

and additional

government requirements or other incremental mitigation efforts that may further impact our business.

the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, the widespread

pandemic has resulted in, and may continue to result in, significant disruption of global financial markets and a recession or

market correction that could materially affect our business and the value of our common stock.

We are continuously monitoring

our own operations and intend to take appropriate actions to mitigate the risks arising from the COVID-19 pandemic to the best

of our abilities, but there can be no assurances that we will be successful in doing so.

To the extent we are able to obtain information

about and maintain communications with our customers, suppliers, vendors and other business partners, we will seek to minimize

disruptions to our Pharmaceutical Development segment’s supply chain.

We are continuously monitoring the potential impact

of COVID-19 on the liquidity of our business partners and remain in regular contact with the individual management teams across

the portfolio of our Finance Receivables segment.

We have and will continue to amend certain performance covenants under some

of our credit agreements and will continue to consider advancing additional capital or allow some interest payments to be paid

in-kind for specified periods in order to support our business partners.

The value of the marketable securities that we hold might

also be negatively impacted as a result of COVID-19.

The ultimate extent of the effects of the COVID-19 pandemic on us is highly

uncertain and will depend on future developments which cannot be predicted.

refer to Part II, Item 1A, Risk Factors , for additional information on risk factors related to the pandemic or other risks

that could impact our business and results of operations.

Our Pharmaceutical

Development segment has seen a reduction in its productivity as well as delays in receiving some of its needed supplies as a direct

result of the pandemic and the impact on key vendors.

This slow-down is likely to continue in the near term until such time as

certain restrictions that have been imposed on us and our suppliers are lifted.

Such events may result in business disruption

and reduced revenues, any of which could materially affect our business, financial condition and results of operations.

refer to Part II, Item 1A, Risk Factors, as well as the Risk Factors in our Annual Report, for additional information on risk

factors related to the pandemic or other risks that could impact our business and results of operations.

have organized our operations into two segments:

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These segments reflect the

way we evaluate our business performance and manage our operations.

Please refer to Part I, Item I, Financial Statements ,

Note 12 of the notes to the unaudited condensed consolidated financial statements for further information regarding segment

way the Company evaluates it business performance and manages its operations.

Please refer to Item 1.

Financial Statements, Note

11 of the notes to the unaudited condensed consolidated financial statements for further information regarding segment information.

Receivables Segment

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intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical

industries (together “life science”) by tailoring financial solutions to the needs of our business partners.

industries (together life science) by tailoring financial solutions to the needs of our business partners.

investment objective is to maximize our portfolio total return and thus increase our net income and book value by generating income

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Receivables Portfolio Overview

table below provides an overview of our outstanding finance receivables transactions as of, and for the nine months ended September

table below provides an overview of our outstanding finance receivables transactions as of, and for the three months ended March

31, 2021 (in thousands, except rate, share and per share data).

Royalty Purchases

Royalty Purchases and Other Financings

Beleodaq®

Oncology treatment

Besivance®

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Oncology diagnosis

Coflex®/Kybella®

Spinal stenosis/Submental

Coflex®/Kybella®/Zalviso®

Spinal stenosis/Submental fullness

NSAID migraine treatment

Forfivo XL®

Depressive disorder

Depressive disorder treatment

Diabetic macular edema

Opioid overdose treatment

Secured Royalty Financing

(Marketable Investment)

Women’s health

Secured Royalty Financing (Marketable Investment)

Womens health

Tissue Regeneration Therapeutics

Umbilical cord banking

Revenue Recognized

Ostomy products royalty

Ostomy products

Contract Rate

Acerus Pharmaceuticals, Inc.

Aimmune Therapeutics, Inc.

B&D Dental Corporation

First Lien Equipment Loan

BIOLASE, Inc.

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eTon Pharmaceuticals, Inc.

Flowonix Medical, Inc.

Harrow Health, Inc.

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10.0% - 12.3 %

Sincerus Pharmaceuticals, Inc.

Tenex Health, Inc.

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Misonix, Inc.

Exercise Price

Change in Fair Value

Warrants to Purchase Stock

Exercise Price

Acerus Pharmaceuticals, Inc.

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BIOLASE, Inc.

CeloNova BioSciences, Inc.

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EyePoint Pharmaceuticals, Inc.

Flowonix Medical, Inc.

Harrow Health, Inc.

Tenex Health, Inc.

Revenue Recognized

Total finance receivables

Total marketable investments

Investment in Tissue Regeneration Therapeutics

Fair value of warrant assets

Total assets/revenues

(1) Investment

considered impaired.

(2) Investment

on nonaccrual.

expense of $163 was recognized during the nine months ended September 30, 2020.

August 21, 2020, the royalty purchase agreement was terminated in exchange for TRT common equity and a convertible note.

see Part 1, Item 1, Financial Statements , Note 4 of the notes to the unaudited condensed consolidated financial statements

for further details.

accordance with credit agreement, $3,000 was funded on January 16, 2020.

accordance with credit agreement, $2,500 was funded on February 19, 2020.

Loan was repaid in October 2020.

is evaluating strategic alternatives for the business.

The loan is currently in default.

retired the facility in April 2020 with its final scheduled payment.

executed an amendment on May 15, 2020, which consolidated first, second and third warrants, for a total of 550,977 shares

at $0.39198 per share.

amended the facility to allow DxTerity to pay in kind the interest payments due in January 2019 and April 2019, subject to

DxTerity raising additional subordinated capital, which it accomplished.

The amendment also allowed DxTerity to pay in-kind

the interest payments due in October 2019, January 2020 and April 2020, subject to DxTerity raising additional subordinated

capital, which DxTerity did not accomplish by the required date.

This resulted in a default under the credit agreement.

paid the interest payments due in July 2020 and October 2020, and we are currently working with DxTerity to

remedy the default.

executed an amendment on August 11, 2020 to increase the maximum principal amount of the term loan to $15,000.

eTon may draw

up to $8,000 upon reaching certain milestones outlined in the amendment;

$2,000 was funded at closing.

accordance with credit agreement, $608 was funded on April 1, 2020.

executed an amendment on March 27, 2020, which extended the maturity date to November 2022.

otherwise specified, our senior secured debt assets generally are repaid by a revenue interest that is charged on a company’s

loan was paid off on April 30, 2021.

Please see Part 1, Item 1, Financial Statements, Note 12 of the notes to the unaudited condensed

consolidated financial statements for further details).

loan was paid off on April 1, 2021.

Please see Part 1, Item 1, Financial Statements, Note 12 of the notes to the unaudited condensed

consolidated financial statements for further details).

otherwise specified, our senior secured debt assets generally are repaid by a revenue interest that is charged on a companys

quarterly net sales and royalties.

Accounting Policies and Estimates

critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis

of Financial Condition and Results of Operations”

of our Annual Report on Form 10-K for the year ended December 31, 2019,

filed with the SEC on March 30, 2020.

We believe there have been no new critical accounting policies or material changes to our

existing critical accounting policies and estimates during the nine months ended September 30, 2020, compared to those discussed

in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements

to Part I, Item 1, Financial Statements , Note 1 of the notes to the unaudited condensed consolidated financial statements

for a listing of recent accounting pronouncements and their potential impact to our consolidated financial statements.

of the Three Months Ended September 30, 2020 and 2019 (in millions)

Three Months Ended

September 30,

Interest expense

Pharmaceutical manufacturing, research and development expense

Change in fair value of acquisition-related contingent consideration

Depreciation and amortization expense

General and administrative expense

Other (expense) income, net

Benefit for income taxes

Consolidated net income

generated revenues of $10.6 and $6.3 million for the three months ended September 30, 2020 and 2019, respectively.

For the three

months ended September 30, 2020, revenues consisted primarily of $7.9 million of interest, fees and royalties earned on our finance

receivables and $2.8 million recognized from our pharmaceutical development segment.

For the three months ended September 30,

2019, revenues consisted primarily of $6.2 million of interest, fees and royalties earned on our finance receivables and $0.1

million received from our pharmaceutical development segment, which was acquired in the third quarter of 2019.

The $4.3 million

increase in total revenues during the 2020 period included $2.5 million of milestone revenue related to Enteris’

license agreement

with Cara, a $0.9 million net increase in royalty income and a $0.7 million net increase in fees and interest earned on our finance

receivables due to additional funding on existing loans.

expense consists of interest on amounts borrowed, unused line of credit and maintenance fees, as well as amortization of debt

issuance costs on our revolving line of credit.

Interest expense was $0.1 million for both the three months ended September 30,

2020 and 2019.

Pharmaceutical

Manufacturing, Research and Development Expense

Pharmaceutical

manufacturing, research and development expense totaling $1.2 million was incurred by our Pharmaceutical Development segment during

the three months ended September 30, 2020, compared to $0.3 million for the period following our acquisition of Enteris through

September 30, 2019.

in Fair Value of Contingent Consideration

change in the fair value of the contingent consideration for three months ended September 30, 2020 was $0.2 million.

The contingent

consideration is the earnout related to the August 26, 2019 acquisition of Enteris and sharing of certain milestone and royalties

due to Enteris pursuant to the License Agreement (please refer to Part I, Item 1, Financial Statements , Note 3 of the notes

to the unuadited condensed consolidated financial statements for further information on contingent consideration and the acquisition

The contingent consideration was remeasured to fair value as of September 30, 2020.

The carrying amount of the liability

may fluctuate significantly, and actual amounts paid may be materially different from the estimated value of the liability.

and Amortization

and amortization increased by $2.3 million as a result of a full quarter of depreciation and amortization of property and equipment

and intangible assets that were obtained in the acquisition of Enteris, which was consummated on August 26, 2019.

and Administrative

and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff,

Board of Directors, legal, accounting and audit expenses, and corporate governance.

General and administrative expenses decreased

to $2.5 million for the three months ended September 30, 2020 from $2.7 million for the three months ended September 30, 2019,

which was primarily due to a $1.1 million decrease in state tax, legal, accounting and other professional fees related to the

Enteris acquisition.

The decrease was offset by a $0.9 million increase in general office, rent, salaries and benefits expense,

which included a $0.2 million increase in the performance-based bonus accrual.

Income (Expense), Net

income (expense), net for the three months ended September 30, 2020 reflected a net fair market value gain of $0.1 million on

our warrant derivatives and a net fair market value loss of $0.2 million on our Misonix common stock.

income for the three months ended September 30, 2019 reflected a net fair market value loss of $1.2 million on our warrant derivatives

and a net fair market value gain of $1.8 million on our Misonix common stock.

the three months ended September 30, 2020, we recognized an income tax benefit of $0.5 million when compared to $0.6 million income

tax benefit for the three months ended September 30, 2019, which represented effective tax rates of negative 48.1 percent and

17.1 percent, respectively.

The provision for income taxes during interim reporting periods is calculated by applying an estimate

of the annual effective tax rate for the full fiscal year to ordinary income or loss for the interim reporting period.

effective tax rate is adjusted for nondeductible expenses and other permanent differences, including changes in fair value in

our acquisition-related contingent consideration, warrant derivatives and equity securities.

The change in the estimated annual

effective tax rate was primarily the result of a decrease in forecasted pretax income for the three months ended September 30,

2020 when compared to the three months ended September 30, 2019.

of the Nine Months Ended September 30, 2020 and 2019 (in millions)

Nine Months Ended September 30,

Provision for credit losses and impairment expense

critical accounting policies and estimates are described in Part II, Item 7, Managements Discussion and Analysis

of Financial Condition and Results of Operations of our Annual Report.

We believe there have been no new critical accounting

policies or material changes to our existing critical accounting policies and estimates during the three months ended March 31,

2021, compared to those discussed in our Annual Report.

Accounting Pronouncements

Financial Information, Item 1.

Financial Statements, Note 1 of the notes to the unaudited condensed consolidated financial

statements for a listing of recent accounting pronouncements and their potential impact to our consolidated financial statements.

of the Three Months Ended March 31, 2021 and 2020 ( in millions )

Three Months Ended March 31,

Provision for credit losses and impairment expenses

Interest expense

Pharmaceutical manufacturing, research and development expense

Change in fair value of acquisition-related contingent consideration

Depreciation and amortization expense

General and administrative expense

Other (expense) income, net

(Benefit) provision for income taxes

Consolidated net income

generated revenues of $25.8 and $21.4 million for the nine months ended September 30, 2020 and 2019, respectively.

months ended September 30, 2020, revenues consisted primarily of $22.7 million of interest, fees and royalties earned on our finance

receivables and $3.1 million recognized from our pharmaceutical development segment.

For the nine months ended September 30, 2019,

revenues consisted primarily of $21.2 million of interest, fees and royalties earned on our finance receivables and $0.1 million

received from our pharmaceutical development segment, which was acquired in the third quarter of 2019.

The increase in revenue

was primarily the result of a $7.3 million increase in interest, fees and royalties earned on our finance receivables due to additional

funding on existing loans and the addition of one term loan and one new royalty since the third quarter of 2019.

Of the $7.3 million

increase, $2.0 million of revenue was received from Veru, Inc.

The total increase in revenue also included $2.5 million of milestone

revenue related to Enteris’s license agreement with Cara.

The increase in revenue was partially offset by a $4.8 million decrease

in interest and fees earned on finance receivables that were either paid off or paid down since the third quarter of 2019.

Other income (expense), net

Provision for income taxes

Consolidated net income (loss)

generated revenues of $9.4 million and $7.3 million for the three months ended March 31, 2021 and 2020, respectively, which

consisted of a $1.5 million increase in interest and fees earned on our finance receivables and a $0.5 million increase in revenues

from our Pharmaceutical Development segment.

The $1.5 million increase in revenue attributable to our Finance Receivables segment

primarily consists of a $1.0 million net increase in royalty income and a $0.9 million increase in fees and interest earned on

our finance receivables due to funding new and existing loans.

The increase in revenue was partially offset by a $0.4 million

decrease in interest and fees earned on finance receivables that were paid off or paid down since the second quarter of 2020.

for Credit Losses and Impairment Expense

recognized impairment expense of $0.2 million on our debt securities during the nine months ended September 30, 2020.

to Part I, Item I, Financial Statements , Note 5 of the Notes to the unaudited condensed consolidated financial statements

for further information regarding the provision for credit loss recognized during the nine months ended September 30, 2020.

the nine months ended September 30, 2019, we recognized credit loss provision expense of $0.6 million related to the Besivance®

royalty, which was due to increases in sales chargebacks and various rebates (gross sales to net sales deductions) and lower sales

expense includes interest on amounts borrowed, unused line of credit and maintenance fees, as well as amortization of debt issuance

costs on our revolving line of credit.

Interest expense was $0.4 million and $0.3 million for the nine months ended September

30, 2020 and 2019, respectively.

On March 17, 2020, we drew $15.0 million on our revolving credit facility in order to support

existing business partners and to finance future investment opportunities, which accounts for the $0.1 million increase in interest

The line of credit was repaid by August 17, 2020, and no amount was outstanding on the line of credit as of September

did not recognize any credit loss provision or impairment expense during the three months ended March 31, 2021.

We recognized

impairment expense of $0.2 million on our available-for-sale debt security during the three months ended March 31, 2020.

expense consists of interest accrued on our revolving line of credit, unused line of credit and maintenance fees, as well as amortization

of debt issuance costs.

Interest expense for both the three months ended March 31, 2021 and 2020 was $0.1 million.

Pharmaceutical

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Pharmaceutical

manufacturing, research and development expense of $3.3 million was incurred by our Pharmaceutical Development segment during

the nine months ended September 30, 2020, compared to $0.3 million for the period following our acquisition of Enteris through

September 30, 2019.

in Fair Value of Contingent Consideration

change in the fair value of the contingent consideration for the nine months ended September 30, 2020 was $2.0 million.

The contingent

consideration is the earnout related to the August 26, 2019 acquisition of Enteris and sharing of certain milestone and royalties

due to Enteris pursuant to the License Agreement (please refer to Part I, Item 1, Financial Statements , Note 3 of the notes

to the unuadited condensed consolidated financial statements for further information on contingent consideration and the acquisition

The contingent consideration was remeasured to fair value as of September 30, 2020.

The carrying amount of the liability

may fluctuate significantly, and actual amounts paid may be materially different from the estimated value of the liability.

manufacturing, research and development expense increased from $1.2 million for the three months ended March 31, 2020 to $1.5

million for three months ended March 31, 2021.

The $0.3 million increase was primarily due to an increase in purchases of manufacturing

and Amortization

and amortization increased by $9.2 million due to the increase in property and equipment and intangible assets that were obtained

in the acquisition of Enteris, which was acquired in the third quarter of 2019.

$1.8 million decrease in depreciation and amortization expense for the three months ended March 31, 2021 primarily consists of

a decrease in amortization expense related to the intangible assets of Enteris.

and Administrative

and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff,

Board of Directors, legal, accounting and audit expenses, and corporate governance.

General and administrative expenses increased

to $8.2 million for the nine months ended September 30, 2020 from $5.3 million for the nine months ended September 30,

2019, which was due to a $2.1 million increase in salaries, benefits and stock-based compensation expense;

a $1.0 million increase

in general office, insurance and rent expense;

and an $0.2 million increase in accounting, audit, legal and other professional

The increase in general and administrative expenses was primarily due to the addition of Enteris, which was acquired in

the third quarter of 2019, along with our recent uplisting to the Nasdaq Stock Market.

Board of Directors, legal and audit expenses, and corporate governance.

General and administrative expenses decreased to

$2.9 million for the three months ended March 31, 2021 from $3.0 million for the three months ended March 31, 2020, which

was due to a $0.2 million decrease in professional fees, office and rent expense, partially offset by a $0.1 million increase in

salaries, wages and benefits.

Income (Expense), Net

income (expense), net for the nine months ended September 30, 2020 reflected a net fair market value loss of $1.2 million on our

warrant derivatives and a net fair market value loss of $0.7 million on our Misonix common stock.

We believe that the net fair

market value losses in our warrant derivative and common stock holdings is primarily attributable to the impact the COVID-19 pandemic

has had on global markets.

income for the nine months ended September 30, 2019 reflected a $0.1 million net fair market value loss on our warrant derivatives

and a $1.8 million gain on our Misonix common stock.

Tax (Benefit) Expense

the nine months ended September 30, 2020 and 2019, we recognized income tax benefit of $0.2 million and income tax expense

of $1.2 million, respectively, which represented effective tax rates of negative 48.1 percent and 17.1 percent, respectively.

The provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective

tax rate for the full fiscal year to ordinary income or loss for the interim reporting period.

The annual effective tax rate is

adjusted for nondeductible expenses and other permanent differences, including changes in fair value in our acquisition-related

contingent consideration, warrant derivatives and equity securities.

The decrease in income tax expense was primarily the

result of a decrease in forecasted pretax income for the nine months ended September 30, 2020 when compared to the nine

months ended September 30, 2019.

Income tax expense for the nine months ended September 30, 2019 also included a $1.2

million adjustment to our deferred tax asset and other discrete items that resulted from the acquisition of Enteris.

income, net for three months ended March 31, 2021 reflected a net fair market value gain of $0.3 million on our warrant derivatives

and a net fair market value gain of $0.9 million on our Misonix common stock.

Other expense, net for the three months ended

March 31, 2020 reflected a net fair market value loss of $1.9 million on our warrant derivatives and a net fair market value

loss of $0.9 million on our Misonix common stock.

for Income Tax

the three months ended March 31, 2021 and 2020, we recognized income tax expense of $0.9 million and $1.3 million, respectively,

which represented effective tax rates of 21 percent and negative 37 percent, respectively.

The provision for income taxes during

interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to ordinary

income or loss for the interim reporting period.

The annual effective tax rate is adjusted for nondeductible expenses and other

permanent differences, including changes in fair value on our warrant derivatives and equity securities, which resulted in a $0.4

million decrease in income tax expense during the three months ended March 31, 2021 when compared to the same period of the prior

and Capital Resources

of September 30, 2020, we had $9.3 million in cash and cash equivalents, compared to $11.2 million in cash and cash equivalents

as of December 31, 2019.

The primary driver of the decrease in our cash balance was $12.5 million of investment funding, net of

deferred fees and origination expenses;

$10.8 million of salaries, employee benefits and accounts payable;

to purchase property and equipment for the expansion of the Enteris manufacturing facility;

$2.0 million to repurchase shares

of the Company’s common stock on the open market;

and a net $0.2 million of interest, fees and other costs related

to our credit facility.

The decrease in cash was partially offset by $25.1 million of interest, fees, principal and royalty

payments received on our finance receivables and $1.1 million received from our pharmaceutical development segment.

ability to generate cash in the future depends primarily upon our success in implementing our Finance Receivable segment business

model of generating income by providing capital to a broad range of life science companies, institutions and inventors, as well

as the success of our Pharmaceutical Development segment.

of March 31, 2021, we had $1.6 million in cash and cash equivalents, compared to $3.0 million in cash and cash equivalents as

of December 31, 2020.

The primary driver of the $1.4 million decrease in our cash balance was $7.1 million of investment funding,

net of deferred fees and origination expenses;

$3.9 million of payments of accounts payable, payroll and benefits expense, including

$0.3 million to purchase property and equipment for the expansion of the Enteris manufacturing facility;

and $0.6 million of net

borrowings and repayments on our credit facility.

The decrease was partially offset by $10.4 million of interest, fees, principal

and royalty payments received on our finance receivables.

ability to generate cash in the future depends primarily upon our success in implementing our Finance Receivables business model

of generating income by providing capital to a broad range of life science companies, institutions and inventors, as well as the

success of our Pharmaceutical Development segment.

We generate income primarily from four sources:

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life science sector.

As of September

30, 2020, our finance receivables portfolio contains $183.2 million of finance receivables and $1.4 million of marketable investments.

We expect these assets to generate positive cash flows in 2020.

However, the COVID-19 pandemic has created substantial uncertainty

in the global markets and economy;

therefore, we will continue to monitor the short and long-term impact this may have on our

finance receivables portfolio.

In addition, the majority of our finance receivables portfolio are debt instruments that carry

floating interest rates with a LIBOR-based interest rate floor.

Changes in interest rates, including LIBOR rates, may affect the

interest income for debt instruments with floating rates.

We believe we are well positioned to benefit should market interest

rates rise in the future.

continue to evaluate multiple attractive opportunities that, if consummated, we believe would similarly generate additional income.

Since the timing of any investment is difficult to predict, our finance receivables segment may not be able to generate positive

cash flow above what our existing assets are expected to produce in 2020.

We do not assume any near-term repayments from borrowers,

and as a result, no assurances can be given that actual results would not differ materially from the statement above.

of September 30, 2020, our Pharmaceutical Development segment did not have a material impact on our cash flow.

of March 31, 2021, our finance receivables portfolio contains $209.9 million of finance receivables, $2.4 million of marketable

investments, and $3.5 million related to our investment in Tissue Regeneration Therapeutics, Inc.

We expect these assets to generate

positive cash flows in 2021.

However, the COVID-19 pandemic has created substantial uncertainty in the global markets and economy;

therefore, we will continue to monitor the short and long-term impact this may have on our finance receivables portfolio.

the majority of our finance receivables portfolio are debt instruments that carry floating interest rates with a LIBOR-based interest

Changes in interest rates, including LIBOR rates, may affect the interest income for debt instruments with floating

We believe we are well positioned to benefit should market interest rates rise in the future.

of March 31, 2021, our Pharmaceutical Development segment did not have a material impact on our cash flow.

We expect the Pharmaceutical

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however, the timing of the receipt of payments under the license agreements is uncertain and dependent

upon the success of our technology licensees’

pharmaceutical development candidates.

upon the success of our technology licensees pharmaceutical development candidates.

Also, the COVID-19 pandemic has resulted

in disruption and delays to pharmaceutical clinical trials in general and may impact the expected timing of our technology licensees’

in disruption and delays to pharmaceutical clinical trials in general and may impact the expected timing of our technology licensees

ability to achieve milestones upon which we receive income pursuant to our license agreements.

we expect in the aggregate that the Company will generate positive cash flow in excess of our expenses, given the abrupt decline

in global economic activity, and the uncertain recovery from such decline, caused by COVID-19, we cannot predict with this with

in global economic activity, and the uncertain recovery from such decline, caused by COVID-19, we cannot predict this with certainty.

entered into a $20.0 million revolving credit facility in June 2018.

On March 17, 2020, the Company drew $15.0 million on its

revolving credit facility in order to support existing business partners and to finance future investment opportunities.

of credit was repaid by August 17, 2020.

As of September 30, 2020, no amount was outstanding under the revolving credit facility,

and $20.0 million was available for borrowing.

As of March 31, 2021, $11.2 million was outstanding under the

revolving credit facility, and $8.8 million was available for borrowing.

The credit facility was paid off subsequent to quarter

ended March 31, 2021, and $20.0 was available for borrowing as of May 10, 2021.

The Loan Agreement matures on June 30, 2021;

however, the Company has the option to extend the maturity date by 90 days.

We continue to explore other options with respect to a

new credit facility.

Sheet Arrangements

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liquidity risk.

Such transactions are used primarily to manage partner companies’

requests for funding and take the form

Such transactions are used primarily to manage partner companies requests for funding and take the form

of loan commitments and lines of credit.

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policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

Please refer to Part I,

Item I, Financial Statements , Note 8 of the notes to the unaudited condensed consolidated financial statements.

Please refer to Item 1.

Financial Statements, Note 8 of the notes to the unaudited condensed consolidated financial statements.

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-Q

Item 1. Financial Statements