SWK Holdings Corp 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2021 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-39184 SWK Holdings Corporation (Exact Name of Registrant as Specified in its Charter) Delaware 77-0435679 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 14755 Preston Road , Suite 105 Dallas , TX 75254 (Address of Principal Executive Offices) (Zip Code) (Registrant’s Telephone Number, Including Area Code): (972) 687-7250 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered Common Stock, par value $0.001 per share SWKH The Nasdaq Stock Market LLC Preferred Stock Purchase Rights SWKH The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o NO Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o NO Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x Smaller Reporting Company x Emerging Growth Company o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES x NO As of November 8, 2021, there were 12,809,438 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding. SWK Holdings Corporation Form 10-Q Quarter Ended September 30, 2021 Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements 2 Unaudited Condensed Consolidated Balance Sheets—September 30, 2021 and December 31, 2020 2 Unaudited Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2021 and 2020 3 Unaudited Condensed Consolidated Statements of Stockholders’ Equity—Three and Nine Months Ended September 30, 2021 and 2020 4 Unaudited Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2021 and 2020 5 Notes to the Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Item 4. Controls and Procedures 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings 29 Item 1A. Risk Factors 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Mine Safety Disclosures 29 Item 5. Other Information 29 Item 6. Exhibits 30 Signatures 31 FORWARD-LOOKING STATEMENTS In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions, and include, but are not limited to, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Words such as “anticipate,” “believe,” “estimate,” “expects,” “intend,” “plan,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially (both favorably and unfavorably) from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Part II, Item 1A, “Risk Factors,” and elsewhere in this report. Forward-looking statements that were believed to be true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share data) September 30, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 18,639 $ 3,008 Interest and accounts receivable, net 2,254 1,911 Marketable investments 2,767 1,210 Other current assets 1,101 542 Total current assets 24,761 6,671 Finance receivables, net 196,141 204,491 Marketable investments 198 241 Cost method investment 3,491 3,491 Deferred tax assets, net 22,649 27,491 Warrant assets 3,650 2,972 Intangible assets, net 10,507 13,617 Goodwill 8,404 8,404 Property and equipment, net 5,791 5,211 Other non-current assets 1,029 1,312 Total assets $ 276,621 $ 273,901 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 4,494 $ 3,652 Revolving credit facility 8 11,758 Total current liabilities 4,502 15,410 Contingent consideration payable 10,670 16,900 Other non-current liabilities 779 1,079 Total liabilities 15,951 33,389 Commitments and contingencies (Note 7) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively — — Common stock, $ 0.001 par value; 250,000,000 shares authorized; 12,801,313 and 12,792,586 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 13 13 Additional paid-in capital 4,431,480 4,430,924 Accumulated deficit ( 4,170,823 ) ( 4,190,425 ) Total stockholders’ equity 260,670 240,512 Total liabilities and stockholders’ equity $ 276,621 $ 273,901 See accompanying notes to the unaudited condensed consolidated financial statements. 2 SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues: Finance receivables interest income, including fees $ 9,373 $ 7,869 $ 29,857 $ 22,738 Pharmaceutical development 187 2,778 10,846 3,076 Other — — 496 9 Total revenues 9,560 10,647 41,199 25,823 Costs and expenses: Impairment expense — — — 163 Interest expense 53 101 292 365 Pharmaceutical manufacturing, research and development expense 2,487 1,182 5,577 3,311 Change in fair value of acquisition-related contingent consideration — 174 ( 147 ) 1,964 Depreciation and amortization expense 812 2,681 3,305 9,629 General and administrative 3,580 2,527 9,825 8,215 Total costs and expenses 6,932 6,665 18,852 23,647 Other income (expense), net Unrealized net (loss) gain on warrants ( 214 ) 87 678 ( 1,151 ) Unrealized net gain (loss) on equity securities 342 ( 178 ) 1,557 ( 666 ) Income before income tax expense (benefit) 2,756 3,891 24,582 359 Income tax expense (benefit) 513 ( 451 ) 4,980 ( 199 ) Consolidated net income $ 2,243 $ 4,342 $ 19,602 $ 558 Net income per share Basic $ 0.18 $ 0.34 $ 1.53 $ 0.04 Diluted $ 0.17 $ 0.34 $ 1.53 $ 0.04 Weighted Average Shares Basic 12,798 12,905 12,796 12,891 Diluted 12,859 12,916 12,834 12,898 See accompanying notes to the unaudited condensed consolidated financial statements. 3 SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) Nine Months Ended September 30, 2021 Common Stock Additional Accumulated Total Stockholders’ Shares Amounts Paid-In Capital Deficit Equity Balances at December 31, 2020 12,792,586 $ 13 $ 4,430,924 $ ( 4,190,425 ) $ 240,512 Stock-based compensation — — 177 — 177 Issuance of common stock 3,021 — — — — Net income — — — 3,389 3,389 Balances at March 31, 2021 12,795,607 13 4,431,101 ( 4,187,036 ) 244,078 Stock-based compensation — — 187 — 187 Issuance of common stock 2,940 — — — — Net income — — — 13,970 13,970 Balances at June 30, 2021 12,798,547 13 4,431,288 ( 4,173,066 ) 258,235 Stock-based compensation — 192 — 192 Issuance of common stock 2,766 — — — — Net income — — — 2,243 2,243 Balances at September 30, 2021 12,801,313 $ 13 $ 4,431,480 $ ( 4,170,823 ) $ 260,670 Nine Months Ended September 30, 2020 Common Stock Additional Accumulated Total Stockholders’ Shares Amounts Paid-In Capital Deficit Equity Balances at December 31, 2019 12,917,348 $ 13 $ 4,432,146 $ ( 4,195,627 ) $ 236,532 Stock-based compensation — — 187 — 187 Issuance of common stock 5,937 — — — — Repurchases of common stock in open market ( 5,279 ) — ( 62 ) — ( 62 ) Net loss — — — ( 4,660 ) ( 4,660 ) Balances at March 31, 2020 12,918,006 13 4,432,271 ( 4,200,287 ) 231,997 Stock-based compensation — — 183 — 183 Issuance of common stock in lieu of payment of employee cash bonuses 5,200 — 60 — 60 Issuance of common stock 4,569 — — — — Repurchases of common stock in open market ( 78,537 ) — ( 1,033 ) — ( 1,033 ) Net income — — — 876 876 Balances at June 30, 2020 12,849,238 $ 13 4,431,481 ( 4,199,411 ) 232,083 Stock-based compensation — — 179 — 179 Issuance of common stock 3,089 — — — — Repurchases of common stock in open market ( 70,176 ) — ( 903 ) — ( 903 ) Net income — — — 4,342 4,342 Balances at September 30, 2020 12,782,151 $ 13 $ 4,430,757 $ ( 4,195,069 ) $ 235,701 See accompanying notes to the unaudited condensed consolidated financial statements. 4 SWK HOLDINGS CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Consolidated net income $ 19,602 $ 558 Adjustments to reconcile net income to net cash provided by operating activities: Impairment expense — 163 Amortization of debt issuance costs 35 141 Deferred income taxes 4,842 ( 206 ) Change in fair value of warrants ( 678 ) 1,151 Change in fair value of equity securities ( 1,557 ) 666 Change in fair value of acquisition-related contingent consideration ( 147 ) 1,964 Loan discount amortization and fee accretion ( 2,016 ) ( 1,598 ) Interest paid-in-kind ( 698 ) ( 2,369 ) Stock-based compensation 556 549 Depreciation and amortization expense 3,305 9,629 Changes in operating assets and liabilities: Interest and accounts receivable ( 343 ) ( 2,054 ) Other assets ( 371 ) ( 819 ) Accounts payable and other liabilities 542 1,434 Net cash provided by operating activities 23,072 9,209 Cash flows from investing activities: Investment in finance receivables ( 20,100 ) ( 12,458 ) Repayment of finance receivables 31,162 5,928 Corporate debt securities principal payment 43 49 Purchases of property and equipment ( 877 ) ( 2,354 ) Other 164 ( 220 ) Net cash provided by (used in) investing activities 10,392 ( 9,055 ) Cash flows from financing activities: Net (payments on) proceeds from credit facility ( 11,750 ) — Payment of acquisition-related contingent consideration ( 6,083 ) — Repurchases of common stock, including fees and expenses — ( 1,998 ) Net cash used in financing activities ( 17,833 ) ( 1,998 ) Net increase in cash and cash equivalents 15,631 ( 1,844 ) Cash and cash equivalents at beginning of period 3,008 11,158 Cash and cash equivalents at end of period $ 18,639 $ 9,314 See accompanying notes to the unaudited condensed consolidated financial statements. 5 SWK HOLDINGS CORPORATION NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. SWK Holdings Corporation and Summary of Significant Accounting Policies Nature of Operations SWK Holdings Corporation (the “Company”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. 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, 2021, the Company had 35 employees. The 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/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. As of November 8, 2021, the Company and its partners have executed transactions with 42 different parties under its specialty finance strategy, funding an aggregate of $600.0 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. On August 26, 2019, the Company commenced its Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence® platform. 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® 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® is protected by an extensive patent estate that extends until 2036. Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“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. The 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. Unaudited Interim Financial Information The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments 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, 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 31, 2021. 6 Reclassification Certain prior period amounts have been reclassified to conform to current period presentation. The amounts for prior periods have been reclassified to be consistent with current presentation and have no impact on previously reported total assets, total stockholders’ equity or net income. Use of Estimates The 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; stock-based compensation; valuation of accounts receivable; impairment of finance receivables; long-lived assets; property and equipment; intangible assets; goodwill; 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. The 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 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. Segment Information The 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 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. Revenue Recognition The 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 parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products. Deferred revenue includes amounts that have been billed per the contractual terms but have not been recognized as revenue. 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. Research and Development Research 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 consolidated statements of income. 7 Recent Accounting Pronouncements In 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 include: (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. In 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. 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. 8 Note 2. Net Income per Share Basic 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. The following table shows the computation of basic and diluted net income per share for the following periods (in thousands, except per share amounts): Schedule of Computation of Basic and Diluted Net Income (Loss) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Numerator: Net income $ 2,243 $ 4,342 $ 19,602 $ 558 Denominator: Weighted-average shares outstanding 12,798 12,905 12,796 12,891 Effect of dilutive securities 61 11 38 7 Weighted-average diluted shares 12,859 12,916 12,834 12,898 Basic net income per share $ 0.18 $ 0.34 $ 1.53 $ 0.04 Diluted net income per share $ 0.17 $ 0.34 $ 1.53 $ 0.04 For the three months ended September 30, 2021 and 2020, outstanding options to purchase shares of common stock and outstanding shares of restricted stock in an aggregate of approximately 367,000 and 409,000 , respectively, have been excluded from the calculation of diluted net income per share as such securities were anti-dilutive. For the nine months ended September 30, 2021 and 2020, outstanding options to purchase shares of common stock and outstanding shares of restricted stock in an aggregate of approximately 390,000 and 455,000 , respectively, have been excluded from the calculation of diluted net income per share as such securities were anti-dilutive. 9 Note 3. Finance Receivables, Net Finance 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. As of September 30, 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 Company’s Cambia® and Besivance® royalties, respectively. The remaining $ 6.6 million is related to the ABT Molecular Imaging, Inc., 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. The carrying values of finance receivables are as follows (in thousands): Schedule of carrying value of finance receivables Portfolio September 30, 2021 December 31, 2020 Term loans $ 149,874 $ 164,032 Royalty purchases 54,655 48,847 Total before allowance for credit losses 204,529 212,879 Allowance for credit losses ( 8,388 ) ( 8,388 ) Total carrying value $ 196,141 $ 204,491 The following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands): Schedule of analysis of nonaccrual and performing loans by portfolio segment September 30, 2021 December 31, 2020 Nonaccrual Performing Total Nonaccrual Performing Total Term loans $ 8,334 $ 141,540 $ 149,874 $ 8,334 $ 155,698 $ 164,032 Royalty purchases, net of credit loss allowance 3,472 42,795 46,267 3,863 36,596 40,459 Total carrying value $ 11,806 $ 184,335 $ 196,141 $ 12,197 $ 192,294 $ 204,491 As of September 30, 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 $ 3.5 million . Although in nonaccrual status, the B&D term loan was not considered impaired as of September 30, 2021 and December 31, 2020. The Company collected $0.4 million on the Best royalty during the nine months ended September 30, 2021, which was credited toward the royalty’s carrying value. Note 4. Marketable Investments Investments in available-for-sale corporate debt securities and equity securities as of September 30, 2021 and December 31, 2020 consist of the following (in thousands): Schedule of marketable investments September 30, 2021 December 31, 2020 Corporate debt securities $ 198 $ 241 Equity securities 2,767 1,210 Total marketable investments $ 2,965 $ 1,451 The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale corporate debt securities as of September 30, 2021 and December 31, 2020, are as follows (in thousands): Schedule of available-for-sale securities reconciliation Amortized Cost Gross Unrealized Gains Gross Unrealized Loss Fair Value September 30, 2021 $ 198 $ — $ — $ 198 December 31, 2020 $ 241 $ — $ — $ 241 10 The following table presents unrealized net income (loss) on equity securities during the three and nine months ended September 30, 2021 and 2020 (in thousands): Schedule of Proceeds from sales, gross unrealized gains and gross unrealized losses for available-for-sale securities Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Unrealized net income (loss) on equity securities reflected in the unaudited condensed consolidated statements of income $ 342 $ ( 178 ) $ 1,557 $ ( 666 ) Note 5. Goodwill and Intangible Assets Goodwill There was no change in the carrying amount of goodwill from December 31, 2020 to September 30, 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. Intangible Assets The following table summarizes the gross book value, accumulated amortization and net book value balances of intangible assets as of September 30, 2021 and December 31, 2020 (in thousands): Schedule of Intangible Assets September 30, 2021 December 31, 2020 Gross Book Value Accumulated Amortization Net Book Value Gross Book Value Accumulated Amortization Net Book Value Licensing Agreement (1) $ 29,400 $ 19,249 $ 10,151 $ 29,400 $ 16,336 $ 13,064 Patents — — — 198 153 45 Trade names and trademarks 210 44 166 210 29 181 Customer relationships 240 50 190 240 32 208 29,850 19,343 10,507 30,048 16,550 13,498 Deferred patent costs — — — 119 — 119 Total intangible assets $ 29,850 $ 19,343 $ 10,507 $ 30,167 $ 16,550 $ 13,617 (1) Prior to the acquisition, Enteris entered into a non-exclusive commercial license agreement (the “License Agreement”) with Cara Therapeutics, Inc. (“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. Amortization expense related to intangible assets was $ 0.6 million and $ 2.6 million for the three months ended September 30, 2021 and 2020, respectively. Amortization expense related to intangible assets was $ 2.9 million and $ 9.4 million for the nine months ended September 30, 2021 and 2020, respectively. The estimated future amortization expense related to intangible assets as of September 30, 2021 is as follows (in thousands): Schedule of Intangible Asset Amortization Expense Fiscal Year Amount Remainder of 2021 $ 548 2022 1,828 2023 1,757 2024 1,413 2025 1,069 2026 and thereafter 3,892 Total $ 10,507 11 Note 6. Revolving Credit Facility On September 27, 2021, the Company entered into the Third Amendment to Loan and Security Agreement (the “Third Amendment”) with Cadence Bank, N.A. as a lender and the administrative agent. Pursuant to the Third Amendment, the Loan and Security Agreement dated as of June 29, 2018 (“Loan Agreement”) was amended to extend the Loan Agreement Termination Date to September 30, 2022 and increase the Loan Agreement Commitment to $22.0 million. The Loan Agreement requires the payment of an unused line fee of 0.50 percent and also provides for quarterly minimum fee income of $60,000 less the aggregate interest and unused line fees paid during the immediately preceding quarter. Unused line fees and minimum fee income are recorded as interest expense. The 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. In connection with the Third Amendment, the Company paid a $50,000 amendment fee, which was capitalized as deferred financing costs and is being amortized on a straight-line basis over the remaining term of the Loan Agreement. The 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. During the nine months ended September 30, 2021 and 2020, the Company recognized $ 0.3 million and $ 0.4 million , respectively, of interest expense. As of September 30, 2021, approximately $ 8,000 was outstanding under the revolving credit facility, and approximately $ 22.0 million was available for borrowing. Note 7. Commitments and Contingencies Contingent Consideration The 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. Contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in the estimated fair value recognized in earnings. As of September 30, 2021 and December 31, 2020, the fair value of contingent consideration was $ 10.7 million and $ 16.9 million , respectively. During the nine months ended September 30, 2021, the Company recognized $10.0 million of revenue related to the completion of a milestone under the License Agreement with Cara. During the nine months ended September 30, 2021, the Company paid $6.1 million of such amount to the seller of Enteris, pursuant to the earnout provisions of the merger agreement. The Company also recognized a $0.1 million change in the estimated fair value of its contingent consideration during the nine months ended September 30, 2021. Unfunded Commitments As of September 30, 2021, the Company’s unfunded commitments were as follows (in millions): Schedule of Unfunded Commitments Trio Healthcare Ltd. Loan $ 4.4 Ideal Implant, Inc. 2.0 Total unfunded commitments $ 6.4 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. 12 Note 8. Fair Value Measurements The 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). 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 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 prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets. Level 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. Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels during the nine months ended September 30, 2021. The 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. Following 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’ fair values. Marketable Investments Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Finance Receivables The 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. Finance receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected below. Contingent Consideration The 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. The 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 cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement. 13 Marketable Investments and Derivative Securities Marketable Investments If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities would be classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets or broker quotes utilizing observable inputs, and accordingly these securities would be classified as Level 2. If market prices are not available and there are no observable inputs, then fair value would be estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes. Such securities would be classified as Level 3, if the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company checks the validity of received prices based on comparison to prices of other similar assets and market data such as relevant bench mark indices. Available-for-sale securities are measured at fair value on a recurring basis, while securities with no readily available fair market value are not, but estimates of fair value are reflected below. Derivative Securities For exchange-traded derivatives, fair value is based on quoted market prices, and accordingly, would be classified as Level 1. For non-exchange traded derivatives, fair value is based on option pricing models and are classified as Level 3. The following table presents financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 (in thousands): Schedule of fair value assets measured on recurring basis Total Carrying Value in Consolidated Balance Sheets Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Warrant assets $ 3,650 $ — $ — $ 3,650 Marketable investments 2,965 2,767 — 198 Financial Liabilities: Contingent consideration payable $ 10,670 $ — $ — $ 10,670 The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 (in thousands): Total Carrying Value in Consolidated Balance Sheets Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Warrant assets $ 2,972 $ — $ — $ 2,972 Marketable investments 1,451 1,210 — 241 Financial Liabilities: Contingent consideration payable $ 16,900 $ — $ — $ 16,900 The changes in fair value of the warrant assets during the nine months ended September 30, 2021 were as follows (in thousands): Schedule of fair value assets measured on recurring basis unobservable input reconciliation Fair value – December 31, 2020 $ 2,972 Issued — Canceled — Change in fair value 678 Fair value – September 30, 2021 $ 3,650 14 The Company holds warrants issued to the Company in conjunction with certain term loan investments. These warrants meet the definition of a derivative and are included in the unaudited condensed consolidated balance sheets. The fair values for warrants outstanding, which do not have a readily determinable value, are measured using the Black-Scholes option pricing model. The following ranges of assumptions were used in the models to determine fair value: Schedule of weighted average assumptions September 30, 2021 December 31, 2020 Dividend rate range — — Risk-free rate range 0.53 % to 1.32 % 0.17 % to 0.65 % Expected life (years) range 2.8 to 6.6 3.6 to 7.4 Expected volatility range 61.3 % to 157.9 % 74.3 % to 174.7 % As of September 30, 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, 2021 and December 31, 2020 (in thousands): Schedule of fair value assets and liabilities measured on nonrecurring basis Total Carrying Value in Consolidated Balance Sheets Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2021 $ 6,109 $ — $ — $ 6,109 December 31, 2020 $ 7,937 $ — $ — $ 7,937 There were no liabilities measured at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020. The 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 measured at fair value on a recurring and non-recurring basis. Schedule of fair value by balance sheet grouping As of September 30, 2021 (in thousands): Carrying Value Fair Value Level 1 Level 2 Level 3 Financial Assets Cash and cash equivalents $ 18,639 $ 18,639 $ 18,639 $ — $ — Finance receivables 196,141 196,141 — — 196,141 Marketable investments 2,965 2,965 2,767 — 198 Warrant assets 3,650 3,650 — — 3,650 Financial Liabilities Contingent consideration payable $ 10,670 $ 10,670 $ — $ — $ 10,670 15 As of December 31, 2020 (in thousands): Carrying Value Fair Value Level 1 Level 2 Level 3 Financial Assets Cash and cash equivalents $ 3,008 $ 3,008 $ 3,008 $ — $ — Finance receivables 204,491 204,491 — — 204,491 Marketable investments 1,451 1,451 1,210 — 241 Warrant assets 2,972 2,972 — — 2,972 Financial Liabilities Contingent consideration payable $ 16,900 $ 16,900 $ — $ — $ 16,900 Note 9. Revenue Recognition The Company’s 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 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, 2021 and 2020 (in thousands): Schedule of Revenue Recognized by Revenue Source Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Pharmaceutical Development Segment License Agreement $ 176 $ 2,768 $ 10,786 $ 2,992 Pharmaceutical Development and other 11 10 556 84 Total contract revenue $ 187 $ 2,778 $ 11,342 $ 3,076 The Company’s 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 consolidated balance sheets (in thousands): Schedule of Company's Contract Liabilities September 30, 2021 December 31, 2020 Pharmaceutical Development Segment Deferred revenue $ 226 $ 350 Total contract liabilities $ 226 $ 350 During the nine months ended September 30, 2021, the Company recognized $ 0.3 million of 2020 deferred revenue from satisfaction of performance obligations. The Company did not have any contract assets nor did it have any contract liabilities related to the License Agreement as of September 30, 2021 or December 31, 2020. 16 Note 10. Segment Information Selected 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 organizes the segments within the Company for making operating decisions, allocating resources, and assessing performance. Consequently, the segments are evident from the structure of the Company’s internal organization, focusing on financial information that the Company’s chief executive officer uses to make decisions about the Company’s operating matters. As 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. Segment performance is evaluated based on several factors, including income (loss) from continuing operations before income. Management 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. The following tables present financial information for the Company’s reportable segments for the periods indicated (in thousands): Schedule of Reportable Segments Three Months Ended September 30, 2021 Finance Receivables Pharmaceutical Development and Other Holding Company and Other Consolidated Revenue $ 9,373 $ 187 $ — $ 9,560 Interest expense 53 — — 53 Manufacturing, research and development — 2,487 — 2,487 Depreciation and amortization — 810 2 812 General and administrative 90 999 2,491 3,580 Other income, net 128 — — 128 Income tax expense — — 513 513 Consolidated net income (loss) 9,358 ( 4,109 ) ( 3,006 ) 2,243 Three Months Ended September 30, 2020 Finance Receivables Pharmaceutical Development and Other Holding Company and Other Consolidated Revenue $ 7,869 $ 2,778 $ — $ 10,647 Interest expense 101 — — 101 Manufacturing, research and development — 1,182 — 1,182 Depreciation and amortization — 2,678 3 2,681 Change in fair value of acquisition-related contingent consideration — 174 — 174 General and administrative 127 1,044 1,356 2,527 Other (expense) income, net ( 192 ) — 101 ( 91 ) Income tax benefit — — ( 451 ) ( 451 ) Consolidated net income (loss) 7,449 ( 2,300 ) ( 807 ) 4,342 17 Nine Months Ended September 30, 2021 Finance Receivables Pharmaceutical Development and Other Holding Company and Other Consolidated Revenue $ 29,857 $ 10,846 $ — $ 40,703 Other revenue — 496 — 496 Interest expense 292 — — 292 Manufacturing, research and development — 5,577 — 5,577 Depreciation and amortization — 3,300 5 3,305 Change in fair value of acquisition-related contingent consideration — ( 147 ) — ( 147 ) General and administrative 2,034 3,088 4,703 9,825 Other income, net 2,235 — — 2,235 Income tax expense — — 4,980 4,980 Consolidated net income (loss) 29,766 ( 476 ) ( 9,688 ) 19,602 Nine Months Ended September 30, 2020 Finance Receivables Pharmaceutical Development and Other Holding Company and Other Consolidated Revenue $ 22,737 $ 3,076 $ 1 $ 25,814 Other revenue 9 — — 9 Provision for credit losses and impairment 163 — — 163 Interest expense 365 — — 365 Manufacturing, research and development — 3,311 — 3,311 Depreciation and amortization — 9,621 8 9,629 Change in fair value of acquisition-related contingent consideration — 1,964 — 1,964 General and administrative 1,429 3,167 3,619 8,215 Other (expense) income, net ( 1,893 ) — 76 ( 1,817 ) Income tax benefit — — ( 199 ) ( 199 ) Consolidated net income (loss) 18,897 ( 14,987 ) ( 3,351 ) 558 Included in Holding Company and Other are the expenses of the parent holding company and certain other enterprise-wide overhead costs, including public company costs and non-Enteris corporate employees, which have been included for purposes of reconciling to the consolidated amounts. Note 11. Subsequent Events Thermedx LLC On October 22, 2021, SWK Funding received $ 0.5 million for the payoff of the Thermedx LLC term loan. The proceeds included accrued interest and interest paid-in-kind. Misonix, Inc. On October 29, 2021, Misonix, Inc. (“Misonix”) was acquired by Bioventus, Inc. (“Bioventus”). Upon closing of the transaction, SWK Funding received $ 31.6 million for the payoff of the Misonix term loan. The proceeds included accrued interest, prepayment and exit fees. The Company also tendered its Misonix common stock and received $ 1.9 million in cash and 71,361 shares of Bioventus common stock valued at $1.2 million at the date of transaction. 18 ITEM 2. MANAGEMENT’S 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 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, 2020 (“Annual Report”), as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this report. COVID-19 Considerations We are subject to risks related to public health crises such as the global pandemic associated with COVID-19. 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. Please 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. Strategic Plan to Focus on Core Specialty Finance Business On May 17, 2021, we issued a press release announcing the formation by our Board of Directors (“Board”) of a Strategic Review Committee (“SRC”) to identify, review and explore strategic alternatives with a view to enhancing stockholder value. With its advisors, the SRC completed a comprehensive review of strategic alternatives for each segment of the Company. On November 1, 2021, we issued a press release announcing that the Board approved a streamlined go-forward business plan and has begun implementing several new measures in light of our current governance structure. The goal of these measures is to improve our strategic focus, growth profile, and capital allocation. The Board believes these measures will allow us to generate long-term value for stockholders. Environmental, Social and Governance As overseers of risk and stewards of long-term enterprise value, our management and Board play a vital role in assessing, identifying and understanding the potential impact and related risks of environmental, social and governance (“ESG”) issues on the organization’s operating model. Our Board and management are committed to identifying those ESG issues most likely to impact business operations and growth by focusing our investment strategy around supporting innovative, growth-oriented companies in the life sciences industry that maximize both social and investment value. Among the ESG issues we support within the Company, we are committed to recruiting, motivating and developing a diversity of talent. We promote and foster a company culture where every voice is welcome, heard and respected, regardless of age, gender, race, religion, sexual orientation, physical conditions, cultural background or country of origin. The nature of our business supports environmental sustainability by being mindful of products we and our partners use in our businesses. We promote recycling to reduce landfill, and we offer our employees a hybrid work model, which allows employees the flexibility to work remotely, thereby reducing the carbon output from commuting in cars or buses. Overview We have organized our operations into two segments: Finance Receivables and Pharmaceutical Development. These segments reflect the way the Company evaluates it business performance and manages its operations. Please refer to Item 1. Financial Statements, Note 10 of the notes to the unaudited condensed consolidated financial statements for further information regarding segment information. Finance Receivables Segment In our Finance Receivables segment, we evaluate and invest in a broad range of healthcare related companies and products with innovative 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. Our investment objective is to maximize our portfolio total return and thus increase our net income and book value by generating income from three sources: (1) primarily owning or financing through debt investments, royalties or revenue interests generated by the sales of life science products and related intellectual property, (2) receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector, and (3) to a lesser extent, realizing capital appreciation from equity-related investments in the life science sector. 19 We primarily provide capital in exchange for an interest in an existing revenue stream, which can take several forms, but is most commonly either a royalty derived from the sales of a life science product from the marketing efforts of a third party or from the marketing efforts of a partner company. Our structured debt investments may include warrants or other features, giving us the potential to realize enhanced returns on a portion of our portfolio. Pharmaceutical Development Segment On August 26, 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris, which became our wholly-owned subsidiary. Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence® platform. 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. Our strategy is to utilize the Peptelligence® platform to create a portfolio of milestone and royalty income, and thus increase our net income and book value, by out-licensing our technology in two ways. First, we intend to out-license our technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. Second, we intend to out-license to pharmaceutical companies our internally developed reformulations of approved, off-patent injectable therapeutic treatments where Peptelligence® enables oral delivery, resulting in meaningful improvements for patients and caregivers. We also generate income by providing customers pharmaceutical development, formulation and manufacturing with the ultimate goal of generating new out-license agreements of our technology. 20 Finance Receivables Portfolio Overview The table below provides an overview of our outstanding finance receivables transactions as of, and for the three and nine months ended September 30, 2021 (in thousands, except rate, share and per share data). Royalty Purchases and Other Financings Licensed Technology Footnote Funded Amount GAAP Balance Contract Rate Revenue Recognized YTD Q3 Beleodaq® Oncology treatment $ 7,600 $ 5,059 N/A $ 1,274 $ 456 Besivance® Ophthalmic antibiotic (3) 6,000 — N/A (26 ) (25 ) Best ABT, Inc. Oncology diagnosis (1), (2) 5,784 3,472 N/A — — Coflex®/Kybella®/Zalviso® Spinal stenosis/Submental fullness 4,350 4,160 N/A 465 155 Cambia® NSAID migraine treatment (1) 8,500 2,637 N/A (9 ) (56 ) Forfivo XL® Depressive disorder treatment 6,000 1,490 N/A 982 307 Ideal Implant, Inc. Aesthetics 3,000 3,097 N/A 203 203 Iluvien® Diabetic macular edema 16,501 16,205 N/A 1,813 641 Narcan® Opioid overdose treatment 17,500 539 N/A 2,423 1,030 Ostomy products royalty Ostomy products 3,900 4,443 N/A 450 156 Secured Royalty Financing (Marketable Investment) Women’s health (1), (2) 3,000 198 11.5% — — Tissue Regeneration Therapeutics Umbilical cord banking (2) 3,250 3,491 N/A — — Veru, Inc. Synthetic Royalty (4) 5,166 5,165 N/A 5,914 1,411 Maturity Date GAAP Balance Contract Rate Revenue Recognized Term Loans Type Footnote Principal YTD Q3 4Web, Inc. First Lien 06/03/23 $ 24,929 $ 25,358 12.8 % $ 2,700 $ 983 Acerus Pharmaceuticals, Inc. First Lien 10/11/23 6,550 6,519 12.0 % 968 298 B&D Dental Corporation First Lien (2), (5) 12/10/18 8,365 8,334 14.0 % — — BIOLASE, Inc. First Lien 11/09/23 14,300 14,428 12.3 % 1,645 558 CeloNova BioSciences, Inc. First Lien (6) 12/31/21 2,054 2,058 12.5 % 360 93 DxTerity Diagnostics, Inc. First Lien (7) 11/30/21 2,474 3,217 13.3 % 1,624 340 Epica International, Inc. First Lien 07/23/23 12,000 12,336 13.5 % 1,202 403 eTon Pharmaceuticals, Inc. First Lien 11/13/24 7,000 6,862 12.0 % 761 257 Flowonix Medical, Inc. First Lien 12/23/25 10,000 9,954 11.0 % 961 331 Harrow Health, Inc. First Lien (3) 07/19/23 — — 9.0% - 12.0 % 1,112 — Keystone Dental, Inc. First Lien 11/14/22 15,000 15,455 11.5 % 1,401 473 Misonix, Inc. First Lien (8) 06/30/23 30,096 30,089 10.0% - 12.3 % 2,384 805 Sincerus Pharmaceuticals, Inc. First Lien 03/19/26 9,750 9,765 13.0 % 681 360 Tenex Health, Inc. First Lien (3) 06/30/21 — — 13.0 % 349 — Thermedx, LLC Sub Note (9) 05/20/29 466 466 11.8 % 40 14 Trio Healthcare Ltd. First Lien 07/01/26 5,100 5,033 12.5 % 180 180 21 No of GAAP Change in Fair Value Common Stock Footnote Shares Balance YTD Q3 Misonix, Inc. Common Stock (8) 109,353 $ 2,767 $ 1,557 $ 342 Sincerus Pharmaceuticals, Inc. 26,575 — — — Number of Exercise Price GAAP Change in Fair Value Warrants to Purchase Stock Shares per Share Balance YTD Q3 4Web, Inc. TBD TBD $ — $ — $ — Acerus Pharmaceuticals, Inc. 7,764,004 0.05 CAD 196 (18) (62) B&D Dental Corporation 225 0.01 — — — BIOLASE, Inc. 550,977 0.39 322 94 (35) CeloNova BioSciences, Inc. TBD 0.01 — — — DxTerity Diagnostics, Inc. 2,019,231 2.08 — — — Epica International, Inc. TBD TBD — — — eTon Pharmaceuticals, Inc. 51,239 5.86 126 (175) (55) eTon Pharmaceuticals, Inc. 18,141 6.62 45 (63) (19) EyePoint Pharmaceuticals, Inc. 40,910 11.00 224 99 35 EyePoint Pharmaceuticals, Inc. 7,773 19.30 34 15 5 Flowonix Medical, Inc. 155,561 3.86 — — — Harrow Health, Inc. 373,847 2.08 2,703 726 (83) Income Recognized Assets YTD Q3 2021 Total finance receivables $ 196,141 $ 29,857 $ 9,373 Total marketable investments 2,965 N/A N/A Cost method investment 3,491 N/A N/A Fair value of warrant assets 3,650 N/A N/A Total assets/revenues $ 206,247 $ 29,857 $ 9,373 (1) Investment considered impaired. (2) Investment on nonaccrual. (3) The loan/royalty was paid off during 2021. (4) The return premium pursuant to the credit agreement was reached, and the residual royalty agreement commenced during the third quarter. (5) B&D is evaluating strategic alternatives for the business. The first lien loan is currently in default. (6) Maturity date was amended to December 31, 2021 in July 2021. (7) Maturity date was amended to November 30, 2021 in June 2021. (8) On October 29, 2021, Misonix was acquired by Bioventus. Upon closing of the transaction, the Misonix term loan was paid off. We also tendered our Misonix common stock and received $1.9 million in cash and 71,361 shares of Bioventus common stock. (9) The loan was paid off on October 22, 2021. Unless otherwise specified, our senior secured debt assets generally are repaid by a revenue interest that is charged on a company’s quarterly net sales and royalties. 22 Critical Accounting Policies and Estimates Our 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. 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, 2021, compared to those discussed in our Annual Report. Recent Accounting Pronouncements Refer to Part I. 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. Comparison of the Three Months Ended September 30, 2021 and 2020 ( in millions ) Three Months Ended September 30, 2021 2020 Change Revenues $ 9.6 $ 10.6 $ (1.0 ) Interest expense 0.1 0.1 — Pharmaceutical manufacturing, research and development expense 2.5 1.2 1.3 Change in fair value of acquisition-related contingent consideration — 0.2 (0.2 ) Depreciation and amortization expense 0.8 2.7 (1.9 ) General and administrative expense 3.6 2.5 1.1 Other income (expense), net 0.1 (0.1 ) 0.2 Income tax expense (benefit) 0.5 (0.5 ) 1.0 Consolidated net income 2.2 4.3 (2.1 ) Revenues Revenues decreased to $9.6 million for the three months ended September 30, 2021 from $10.6 million for the three months ended September 30, 2020. The decrease was primarily the result of a $2.6 million decrease in revenues from our Pharmaceutical Development segment, partially offset by a $1.5 million increase in interest and fees earned on our finance receivables. The decrease in Pharmaceutical Development segment revenue was primarily the result of $2.5 million of non-recurring milestone revenue received in 2020 related to Enteris’ license agreement with Cara. The $1.5 million increase in revenue attributable to our Finance Receivables segment primarily consists of a $1.4 million net increase in royalty income and a $1.1 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 $1.0 million decrease in interest and fees earned on finance receivables that were paid off or paid down since the third quarter of 2020. Interest Expense Interest 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 September 30, 2021 and 2020 was $0.1 million, respectively. Pharmaceutical Manufacturing, Research and Development Expense Pharmaceutical manufacturing, research and development expense increased from $1.2 million for the three months ended 2020 to $2.5 million for the three months ended September 30, 2021. The $1.3 million increase was primarily due to an increase in manufacturing materials for pipeline projects and clinical trials. Change in Fair Value of Acquisition-Related Contingent Consideration We did not recognize any change in fair value of acquisition-related contingent consideration during the three months ended September 30, 2021, and a $0.2 million remeasurement adjustment was made during the three months ended September 30, 2020. Please refer to Part I, Item I, Financial Statements , Note 7 of the notes to the unaudited condensed consolidated financial statements for further information regarding acquisition-related contingent consideration. 23 Depreciation and Amortization The $1.9 million decrease in depreciation and amortization expense for the three months ended September 30, 2021 primarily consists of a decrease in amortization expense related to the intangible assets of Enteris. Amortization expense is aligned with the expected future cash flows of the intangible assets. General and Administrative General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff and Board, legal and audit expenses, and corporate governance expenses. General and administrative expenses increased to $3.6 million for the three months ended September 30, 2021 from $2.5 million for the three months ended 2020. The $1.1 million increase was primarily due to a $1.0 million increase in expenses incurred in connection with the SRC’s efforts to identify, review and explore strategic alternatives for the Company; such expenses primarily consist of legal and financial consulting fees, as well as Board compensation. Other Income (expense), Net Other income (expense), net for three months ended September 30, 2021 reflected a net fair market value loss of $0.2 million on our warrant derivatives and a net fair market value gain of $0.3 million on our Misonix common stock. Other 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 Tax Expense (Benefit) During the three months ended September 30, 2021 and 2020, we recognized income tax expense of $0.5 million and income tax benefit of $0.5 million, respectively. The $1.0 million increase in income tax expense is a result of higher taxable income for the three months ended September 30, 2021 when compared to the same period of the prior year. 24 Comparison of the Nine Months Ended September 30, 2021 and 2020 ( in millions ) Nine Months Ended September 30, 2021 2020 Change Revenues $ 41.2 $ 25.8 $ 15.4 Provision for credit losses and impairment expenses — 0.2 (0.2 ) Interest expense 0.3 0.4 (0.1 ) Pharmaceutical manufacturing, research and development expense 5.6 3.3 2.3 Change in fair value of acquisition-related contingent consideration (0.1 ) 2.0 (2.1 ) Depreciation and amortization expense 3.3 9.6 (6.3 ) General and administrative expense 9.8 8.2 1.6 Other income (expense), net 2.2 (1.8 ) 4.0 Income tax expense (benefit) 5.0 (0.2 ) 5.2 Consolidated net income 19.6 0.6 19.0 Revenues We generated revenues of $41.2 million and $25.8 million for the nine months ended September 30, 2021 and 2020, respectively. The $15.4 million increase consisted primarily of a $6.9 million increase in interest and fees earned on our finance receivables and a $8.2 million increase in revenues from our Pharmaceutical Development segment. The increase in Pharmaceutical Development segment revenue included milestone revenue related to Enteris’ license agreement with Cara. The $6.9 million increase in revenue attributable to our Finance Receivables segment was the result of a $5.1 million net increase in royalty income and a $2.8 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 $1.0 million decrease in interest and fees earned on finance receivables that were paid off or paid down since the third quarter of 2020. Provision for Credit Losses and Impairment Expense We did not recognize any credit loss provision or impairment expense during the nine months ended September 30, 2021. We recognized impairment expense of $0.2 million on our available-for-sale debt security during the nine months ended September 30, 2020. Interest Expense Interest 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 the nine months ended September 30, 2021 and 2020 was $0.3 million and $0.4 million, respectively. Pharmaceutical Manufacturing, Research and Development Expense Pharmaceutical manufacturing, research and development expense increased from $3.3 million for the nine months ended September 30, 2020 to $5.6 million for nine months ended September 30, 2021. The $2.3 million increase was primarily due to an increase in manufacturing materials for pipeline projects and clinical trials. Change in Fair Value of Acquisition-Related Contingent Consideration We recognized a $0.1 million change in fair value of acquisition-related contingent consideration during the nine months ended September 30, 2021, and a $2.0 million remeasurement adjustment was made during the three months ended September 30, 2020. Please refer to Part I, Item I, Financial Statements , Note 7 of the notes to the unaudited condensed consolidated financial statements for further information regarding acquisition-related contingent consideration. Depreciation and Amortization The $6.3 million decrease in depreciation and amortization expense for the nine months ended September 30, 2021 primarily consists of a decrease in amortization expense related to the intangible assets of Enteris. Amortization expense is aligned with the expected future cash flows of the intangible assets. 25 General and Administrative General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff and Board, legal and audit expenses, and corporate governance expenses. General and administrative expenses increased to $9.8 million for the nine months ended September 30, 2021 from $8.2 million for the nine months ended September 30, 2020. The $1.6 million increase was primarily due to a $1.4 million increase in expenses incurred in connection with the SRC’s efforts to identify, review and explore strategic alternatives for the Company; such expenses primarily consist of legal and financial consulting fees, as well as Board compensation. The increase also included a $0.2 million increase in salaries and benefits expense, as well as a $0.3 million increase in overall office, insurance and rent expense. The increase was partially offset by a $0.2 million decrease in other professional fees. Other Income (Expense), Net Other income, net for nine months ended September 30, 2021 reflected a net fair market value gain of $0.7 million on our warrant derivatives and a net fair market value gain of $1.6 million on our Misonix common stock. Other 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. Income Tax Expense During the nine months ended September 30, 2021 and 2020, we recognized income tax expense of $5.0 million and tax benefit of $0.2 million, respectively. The $5.2 million increase in income tax expense is a result of higher taxable income for the nine months ended September 30, 2021 when compared to the same period of the prior year. Liquidity and Capital Resources As of September 30, 2021, we had $18.6 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 $15.6 million increase in our cash balance was $58.3 million of interest, fees, principal and royalty payments received on our finance receivables and a net $5.0 million of payments generated by our Pharmaceutical Development segment (the net $5.0 million includes a $10.0 million payment related to the completion of a milestone under the License Agreement less $6.1 million paid to the seller of Enteris, pursuant to the provisions of the merger agreement). The increase was partially offset by $19.8 million of investment funding, net of deferred fees and origination expenses; $16.0 million of accounts payable, payroll and benefits expense, including $3.2 million for Enteris’ internal pipeline projects; and $11.8 million of net borrowings and repayments on our credit facility. Subsequent to September 30, 2021, we received $35.7 million of interest, fees and principal payments on our finance receivables, including $32.1 million for the payoff of two term loans (please refer to Part I. Financial Information, Item 1. Financial Statements, Note 11 of the notes to the unaudited condensed consolidated financial statements for further details). As of November 8, 2021, we had $56.8 million in cash and cash equivalents. Our 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: 1. Primarily owning or financing through debt investments, royalties generated by the sales of life science products and related intellectual property; 2. Receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector; 3. Pharmaceutical development, manufacturing, and licensing activities utilizing the Peptelligence® platform; and 4. To a lesser extent, realizing capital appreciation from equity-related investments in the life science sector. As of September 30, 2021, our finance receivables portfolio contains $196.1 million of finance receivables, $3.0 million of marketable investments, and $3.5 million related to our cost method investment. In the aggregate, 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. 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. 26 We expect the Pharmaceutical Development segment to generate positive cash flow above its expenses from proceeds received under its license agreements and customer relationships; 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. 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’ ability to achieve milestones upon which we receive income pursuant to our license agreements. Though 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 this with certainty. We entered into a $20.0 million revolving credit facility in June 2018. The credit facility was amended on September 27, 2021 to extend the termination date to September 30, 2022 and to increase the credit facility commitment to $22.0 million. We continue to explore other options with respect to a new credit facility. As of September 30, 2021, approximately $22.0 million was available for borrowing under the credit facility. Off-Balance Sheet Arrangements In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage partner companies’ requests for funding and take the form of loan commitments and lines of credit. The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the partner company defaults, and the value of any existing collateral becomes worthless. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Please refer to Item 1. Financial Statements, Note 7 of the notes to the unaudited condensed consolidated financial statements. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. During the nine months ended September 30, 2021, our cash and cash equivalents were deposited in accounts at well capitalized financial institutions. The fair value of our cash and cash equivalents at September 30, 2021 approximated its carrying value. Investment and Interest Rate Risk We are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flow. As we seek to provide capital to a broad range of life science companies, institutions and investors with the majority of our finance receivables portfolio paying interest based on floating interest rates with a LIBOR floor, our net investment income is dependent, in part, upon the difference between the rate at which we earn on our cash and cash equivalents and the rate at which we lend those funds to third parties. As a result, we are subject to risks relating to changes in market interest rates. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations by providing capital at variable interest rates. We do not currently engage in any interest rate hedging activities. We constantly monitor our portfolio and position our portfolio to respond appropriately to a reduction in credit rating of any of our investments. During 2018, we entered into a revolving credit facility. As we borrow funds to make additional investments, our income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have debt outstanding, our cost of funds would increase, which could reduce our income, especially to the extent we continue to hold fixed rate investments. We generally seek to mitigate this risk by pricing our debt investments with floating interest rates to maintain the spread of our portfolio over the cost of leverage. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations, which we have not done. Adverse developments resulting from changes in interest rates or hedging transactions could have a materially adverse effect on our business, financial condition and results of operations. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our investment income, net of borrowing expenses. Inflation We do not believe that inflation has had a significant impact on our revenues or operations. ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In connection with the preparation of this report, our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Changes in Internal Control over Financial Reporting There have been no changes during the nine months ended September 30, 2021 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources. Currently, we are not involved in any arbitration and/or other legal proceeding that we expect to have a material effect on our business, financial condition, results of operations and cash flows. ITEM 1A. RISK FACTORS Information regarding the Company’s risk factors appears in “Part I. – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 31, 2021. There are no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. Not Applicable. ITEM 5. OTHER INFORMATION. None. 29 ITEM 6. EXHIBITS Filing Filed Number Exhibit Description Form Exhibit Date Herewith 31.01 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.02 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.01 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* X 32.02 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* X 101.INS+ XBRL Instance X 101.SCH+ XBRL Taxonomy Extension Schema X 101.CAL+ XBRL Taxonomy Extension Calculation X 101.DEF+ XBRL Taxonomy Extension Definition X 101.LAB+ XBRL Taxonomy Extension Labels X 101.PRE+ XBRL Taxonomy Extension Presentation X * These certifications accompany this Quarterly Report on Form 10-Q. They are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference in any filing of SWK Holdings Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. + XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 12, 2021. SWK Holdings Corporation By: /s/ Winston L. Black Winston L. Black Chief Executive Officer (Principal Executive Officer) By: /s/ Charles M. Jacobson Charles M. Jacobson Chief Financial Officer (Principal Financial Officer) 31