What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-16 · 191 added, 471 removed, 541 unchanged (55% of the section changed)

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thousands, except par value and share data)

September 30,

Current assets:

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Cost method investment

Deferred tax asset, net

Deferred tax assets, net

Warrant assets

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5,000,000 shares authorized;

no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

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;

12,798,547 and 12,792,586 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

12,801,313 and 12,792,586 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

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Total liabilities and stockholders’ equity

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

thousands, except per share data)

See accompanying

notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands,

except per share data)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Finance receivables interest income, including fees

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Other income (expense), net

Unrealized net gain (loss) on warrants

Unrealized net (loss) gain on warrants

Unrealized net gain (loss) on equity securities

Income (loss) before income tax expense (benefit)

Income before income tax expense (benefit)

Income tax expense (benefit)

Consolidated net income (loss)

Net income (loss) per share

Consolidated net income

Net income per share

Weighted Average Shares

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

See accompanying

notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except share data)

Six Months Ended June 30, 2021

Additional Paid-

(in thousands,

except share data)

Nine Months Ended September 30, 2021

Stockholders’

Paid-In Capital

Balances at December 31, 2020

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( 4,173,066 )

Six Months Ended June 30, 2020

Additional Paid-

Stock-based compensation

Issuance of common stock

Balances at September 30, 2021

$ ( 4,170,823 )

Nine Months Ended September 30, 2020

Stockholders’

Paid-In Capital

Balances at December 31, 2019

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( 4,199,411 )

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

Stock-based compensation

Issuance of common stock

Repurchases of common stock in open market

Balances at September 30, 2020

$ ( 4,195,069 )

See accompanying

notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

(in thousands)

Nine Months Ended

September 30,

Cash flows from operating activities:

Consolidated net income (loss)

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

Consolidated net income

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

Impairment expense

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Repurchases of common stock, including fees and expenses

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

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Cash and cash equivalents at end of period

accompanying notes to the unaudited condensed consolidated financial statements.

HOLDINGS CORPORATION

TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

See accompanying

notes to the unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SWK Holdings Corporation and Summary of Significant Accounting Policies

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the sales of life science products by third parties.

The Company is headquartered in Dallas, Texas, and as of June 30, 2021, the

Company had 35 employees.

The Company is headquartered in Dallas, Texas, and as of September 30, 2021,

the Company had 35 employees.

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

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

of August 11, 2021, the Company and its partners have executed transactions with 42 different parties under its specialty

finance strategy, funding an aggregate $600.0 million in various financial products across the life science sector.

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

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is protected by an extensive patent estate that extends until 2036.

of Presentation and Principles of Consolidation

Basis of Presentation

and Principles of Consolidation

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

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on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 31, 2021.

Reclassification

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.

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

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and development expense in the consolidated statements of income.

Accounting Pronouncements

Recent Accounting Pronouncements

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

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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):

Schedule of Computation of Basic and Diluted Net Income (Loss)

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

per share amounts):

of Computation of Basic and Diluted Net Income (Loss)

Three Months Ended

Six Months Ended

Net income (loss)

September 30,

Nine Months Ended

September 30,

Weighted-average shares outstanding

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Weighted-average diluted shares

Basic net income (loss)

Diluted net income (loss) per share

the three months ended June 30, 2021 and 2020, outstanding options to purchase shares of common stock and outstanding shares of

restricted stock in an aggregate of approximately 391,000 and 495,000 , respectively, have been excluded from the calculation of

diluted net income (loss) per share as all such securities were anti-dilutive.

For the six months ended June 30, 2021 and 2020,

Basic net income per share

Diluted net income per share

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

401,000 and 483,000 , respectively, have been excluded from the calculation of diluted net income (loss) per share as all such

securities were anti-dilutive.

Finance Receivables, Net

390,000 and 455,000 , respectively, have been excluded from the calculation of diluted net income per share as such securities

were anti-dilutive.

Receivables, Net

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

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expected using the effective interest method.

of June 30, 2021 and December 31, 2020, the Company had a credit loss allowance of $8.4 million.

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,

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The remaining

$ 6.6 million is related to the ABT Molecular Imaging, Inc.

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

second lien term loan that was recognized in order to reflect the Best royalty at its estimated fair value of $ 3.6 million.

The carrying values of finance receivables are as follows (in thousands):

$ 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

June 30, 2021

December 31, 2020

September 30,

Royalty purchases

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Schedule of analysis of nonaccrual and performing loans by portfolio segment

June 30, 2021

September 30, 2021

December 31, 2020

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Total carrying value

of June 30, 2021, the Company had two finance receivables in nonaccrual status:

of September 30, 2021, the Company had two finance receivables in nonaccrual status:

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

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$ 3.5 million .

Although in nonaccrual status, the B&D term loan was not considered impaired as of June 30, 2021 and December

The Company collected $0.3 million on the Best royalty during the six months ended June 30, 2021, which was credited

toward the royaltys carrying value.

Marketable Investments

in available-for-sale corporate debt securities and equity securities as of June 30, 2021 and December 31, 2020 consist of the

following (in thousands):

Schedule of marketable investments

June 30, 2021

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.

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,

Corporate debt securities

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

corporate debt securities as of June 30, 2021 and December 31, 2020, are as follows (in thousands):

corporate debt securities as of September 30, 2021 and December 31, 2020, are as follows (in thousands):

Schedule of available-for-sale securities reconciliation

June 30, 2021

September 30, 2021

December 31, 2020

following table presents unrealized net income (loss) on equity securities during the three and six months ended June 30, 2021

following table presents unrealized net income (loss) on equity securities during the three and nine months ended September 30,

2021 and 2020 (in thousands):

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Three Months Ended

Six Months Ended

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 June 30, 2021, and net book value remains at $8.4 million.

September 30,

Nine Months Ended

September 30,

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

Goodwill and Intangible

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

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

following table summarizes the gross book value, accumulated amortization and net book value balances of intangible assets as

of June 30, 2021 and December 31, 2020 (in thousands):

of September 30, 2021 and December 31, 2020 (in thousands):

Schedule of Intangible Assets

September 30, 2021

December 31, 2020

Licensing Agreement (1)

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Total intangible assets

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.

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 $ 0.7 million and $ 3.3 million for the three months ended June 30, 2021 and 2020, respectively.

Amortization expense related to intangible assets was $ 2.3 million and $ 6.8 million for the six months ended June 30, 2021 and

(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.

expense related to intangible assets was $ 0.6 million and $ 2.6 million for the three months ended September 30, 2021 and 2020,

respectively.

estimated future amortization expense related to intangible assets as of June 30, 2021 is as follows (in thousands):

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.

estimated future amortization expense related to intangible assets as of September 30, 2021 is as follows (in thousands):

Schedule of Intangible Asset Amortization Expense

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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 eligibility.

Credit Facility

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.

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

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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.

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.

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

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minimum asset coverage and minimum interest coverage ratios.

the six months ended June 30, 2021 and 2020, the Company recognized $0.2 million and $0.3 million, respectively, of interest expense.

As of June 30, 2021, no amount was outstanding under the revolving credit facility, and $ 20.0 million was available for borrowing.

The Loan Agreement was amended on June 29, 2021 to extend the maturity date to September 27, 2021.

Subsequent to quarter ended

June 30, 2021, the Company paid a $ 16,750 amendment fee, which will be capitalized as a deferred financing cost that will be amortized

on a straight line basis over the remaining term of the Loan Agreement.

The Company continues to explore other options with respect

to a new credit facility.

the nine months ended September 30, 2021 and 2020, the Company recognized $ 0.3 million and $ 0.4 million , respectively, of interest

As of September 30, 2021, approximately $ 8,000 was outstanding under the revolving credit facility, and approximately

$ 22.0 million was available for borrowing.

Commitments and Contingencies

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.

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 June 30, 2021 and December 31, 2020, the fair value of contingent consideration was $ 10.7 million

and $ 16.9 million, respectively.

During the six months ended June 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 six months ended June 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 six months ended June 30, 2021.

of June 30, 2021, the Companys unfunded commitments were as follows (in millions):

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.

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.

of September 30, 2021, the Company’s unfunded commitments were as follows (in millions):

Schedule of Unfunded Commitments

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

Fair Value Measurements

Value Measurements

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

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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 six months ended June 30, 2021.

no transfers between any levels during the nine months ended September 30, 2021.

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

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Investments and Derivative Securities

Marketable Investments

active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these 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 June 30, 2021 (in

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

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Contingent consideration payable

changes in fair value of the warrant assets during the six months ended June 30, 2021 were as follows (in thousands):

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

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Change in fair value

Fair value – June 30, 2021

Fair value – September 30, 2021

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

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Schedule of weighted average assumptions

June 30, 2021

December 31, 2020

September 30,

Dividend rate range

Risk-free rate range

0.46 % - 1.21 %

0.53 % to 1.32 %

0.17 % to 0.65 %

Expected life (years) range

Expected volatility range

64.6 % - 150.8 %

61.3 % to 157.9 %

of June 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.

74.3 % to 174.7 %

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 June 30, 2021 and December 31, 2020 (in thousands):

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

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or Liabilities

June 30, 2021

September 30, 2021

December 31, 2020

were no liabilities measured at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020.

were no liabilities measured at fair value on a nonrecurring basis as of September 30, 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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Schedule of fair value by balance sheet grouping

of June 30, 2021 (in thousands):

of September 30, 2021 (in thousands):

Financial Assets

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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 six months ended June 30, 2021 and 2020 (in thousands):

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 June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Pharmaceutical Development Segment

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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):

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

June 30, 2021

December 31, 2020

September 30,

Pharmaceutical Development Segment

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Total contract liabilities

the six months ended June 30, 2021, the Company recognized $ 0.3 million of 2020 deferred revenue from satisfaction of performance

the nine months ended September 30, 2021, the Company recognized $ 0.3 million of 2020 deferred revenue from satisfaction of performance

The Company did not have any contract assets nor did it have any contract liabilities related to the License Agreement

as of June 30, 2021 or December 31, 2020.

as of September 30, 2021 or December 31, 2020.

Segment Information

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Schedule of Reportable Segments

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Pharmaceutical

Development and

Holding Company

Interest expense

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Depreciation and amortization

Change in fair value of acquisition-related contingent consideration

General and administrative

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Consolidated net income (loss)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Pharmaceutical

Development and

Holding Company

Other revenue

Interest expense

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General and administrative

Other income, net

Other (expense) income, net

Income tax benefit

Consolidated net income (loss)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Pharmaceutical

Development and

Holding Company

Other revenue

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Consolidated net income (loss)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Pharmaceutical

Development and

Holding Company

Other revenue

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General and administrative

Other expense, net

Income tax expense

Other (expense) income, net

Income tax benefit

Consolidated net income (loss)

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consolidated amounts.

Subsequent Event

August 11, 2021, the Board of Directors, upon the recommendation of its Compensation Committee, approved bonus agreements with certain

selected employees of the Company.

The bonus agreements provide for special bonuses in the event of the consummation of a strategic corporate

transaction by the Company that occurs before April 1, 2022.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Considerations

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.

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:

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.

Receivables Segment

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.

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.

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

August 26, 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris, which became our wholly-owned

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.

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.

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.

Receivables Portfolio Overview

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

June 30, 2021 (in thousands, except rate, share and per share data).

Purchases and Other

Oncology treatment

Ophthalmic antibiotic

Best ABT, Inc.

Oncology diagnosis

Coflex®/Kybella®/Zalviso®

Spinal stenosis/Submental fullness

NSAID migraine treatment

Depressive disorder treatment

Ideal Implant, Inc.

Diabetic macular edema

Opioid overdose treatment

Secured Royalty Financing (Marketable Investment)

Womens health

Tissue Regeneration Therapeutics, Inc.

Umbilical cord banking

Ostomy products royalty

Ostomy products

Revenue Recognized

Maturity Date

Contract Rate

Acerus Pharmaceuticals, Inc.

B&D Dental Corporation

BIOLASE, Inc.

CeloNova BioSciences, Inc.

DxTerity Diagnostics, Inc.

Epica International, Inc.

eTon Pharmaceuticals, Inc.

Flowonix Medical, Inc.

Harrow Health, Inc.

Keystone Dental, Inc.

Misonix, Inc.

Sincerus Pharmaceuticals, Inc.

Tenex Health, Inc.

Thermedx, LLC

Trio Healthcare Ltd.

Change in Fair Value

Subsequent Events

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.

Sincerus Pharmaceuticals, Inc.

Change in Fair Value

Warrants to Purchase Stock

Exercise Price

Acerus Pharmaceuticals, Inc.

B&D Dental Corporation

BIOLASE, Inc.

CeloNova BioSciences, Inc.

DxTerity Diagnostics, Inc.

Epica International, Inc.

eTon Pharmaceuticals, Inc.

EyePoint Pharmaceuticals, Inc.

Flowonix Medical, Inc.

Harrow Health, Inc.

Income Recognized

Total finance receivables

Total marketable investments

Cost method investment

Fair value of warrant assets

Total assets/revenues

considered impaired.

on nonaccrual.

is evaluating strategic alternatives for the business.

The first lien loan is currently in default.

date was amended to December 31, 2021 in July 2021.

loan was paid off during 2021.

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, 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 six months ended June 30, 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 June 30, 2021 and 2020 ( in millions )

Three Months Ended June 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 income, net

Income tax expense (benefit)

Consolidated net income

generated revenues of $22.3 million and $7.9 million for the three months ended June 30, 2021 and 2020, respectively,

which consisted of a $4.1 million increase in interest and fees earned on our finance receivables and a $10.3 million increase

in revenues from our Pharmaceutical Development segment.

The increase in Pharmaceutical Development segment revenue included $10.0

million of milestone revenue related to Enteris license agreement with Cara.

The $4.1 million increase in revenue attributable

to our Finance Receivables segment primarily consists of a $2.9 million net increase in royalty income and a $1.8 million net

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 $0.6 million decrease in interest and fees earned on finance receivables that were paid off or paid

down since the second quarter of 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 June 30, 2021 and 2020 was $0.1 million $0.2 million,

respectively.

Pharmaceutical

Manufacturing, Research and Development Expense

Pharmaceutical

manufacturing, research and development expense increased from $1.0 million for the three months ended 2020 to $1.5 million

for the three months ended June 30, 2021.

The $0.5 million increase was primarily due to an increase in manufacturing materials

for pipeline projects and clinical trials.

and Amortization

$2.6 million decrease in depreciation and amortization expense for the three months ended June 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.

and Administrative

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

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

General and administrative expenses increased to $3.4

million for the three months ended June 30, 2021 from $2.6 million for the three months ended 2020, which was due to a $0.3 million

increase in professional fees, a $0.1 million increase in salaries and benefits expense, and a $0.2 increase in overall office

and rent expense.

income, net for three months ended June 30, 2021 reflected a net fair market value gain of $0.6 million on our warrant derivatives

and a net fair market value gain of $0.3 million on our Misonix common stock.

Other income, net for the three months ended

June 30, 2020 reflected a net fair market value gain of $0.6 million on our warrant derivatives and a net fair market value

gain of $0.4 million on our Misonix common stock.

Tax Expense (Benefit)

the three months ended June 30, 2021 and 2020, we recognized income tax expense of $3.5 million and income tax benefit of $1.0 million,

respectively.

The $4.5 million increase in income tax expense is a result of higher taxable income for the three months ended

June 30, 2021 when compared to the same period of the prior year.

of the Six Months Ended June 30, 2021 and 2020 ( in millions )

Six Months Ended June 30,

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 income (expense), net

Income tax expense

Consolidated net income (loss)

generated revenues of $31.6 million and $15.2 million for the six months ended June 30, 2021 and 2020, respectively,

which consisted of a $5.6 million increase in interest and fees earned on our finance receivables and a $10.8 million increase

in revenues from our Pharmaceutical Development segment.

The increase in Pharmaceutical Development segment revenue included $10.0

million of milestone revenue related to Enteris license agreement with Cara.

The $5.6 million increase in revenue attributable

to our Finance Receivables segment primarily consists of a $4.2 million net increase in royalty income and a $2.3 million net

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 $0.9 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

did not recognize any credit loss provision or impairment expense during the six months ended June 30, 2021.

We recognized impairment

expense of $0.2 million on our available-for-sale debt security during the six months ended June 30, 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 the six months ended June 30, 2021 and 2020 was $0.2 million and $0.3 million,

respectively.

Pharmaceutical

Manufacturing, Research and Development Expense

Pharmaceutical

manufacturing, research and development expense increased from $2.2 million for the six months ended June 30, 2020 to $3.1 million

for six months ended June 30, 2021.

The $0.9 million increase was primarily due to an increase in manufacturing materials

for pipeline projects and clinical trials.

and Amortization

$4.4 million decrease in depreciation and amortization expense for the six months ended June 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.

and Administrative

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

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

General and administrative expenses increased to $6.2 million

for the six months ended June 30, 2021 from $5.7 million for the six months ended June 30, 2020, which was due to a $0.2

million increase in salaries and benefits expense, a $0.2 million increase in professional fees, and a $0.2 million increase in

board fees and overall office and rent expenses.

Income (Expense), Net

income, net for six months ended June 30, 2021 reflected a net fair market value gain of $0.9 million on our warrant derivatives

and a net fair market value gain of $1.2 million on our Misonix common stock.

Other expense, net for the six months ended

June 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 $0.5 million on our Misonix common stock.

During the six months ended June 30, 2021 and 2020, we recognized income tax expense of $4.5 million and $0.3 million, respectively.

The $4.2 million increase in income tax expense is a result of higher taxable income for the six months ended June 30, 2021 when compared

to the same period of the prior year.

and Capital Resources

of June 30, 2021, we had $6.6 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 $3.6 million increase in our cash balance was $41.8 million of interest, fees,

principal and royalty payments received on our finance receivables and a net $3.9 million of payments generated by our

Pharmaceutical Development License Agreement with Cara ($10.0 million received from Cara less $6.1 million paid to the seller of Enteris, pursuant to the provisions of the merger agreement).

The increase was partially offset by $19.5 million of investment funding,

net of deferred fees and origination expenses;

$11.3 million of payments of accounts payable, payroll and benefits expense,

including $1.1 million for Enteris internal pipeline projects;

and $11.8 million of net borrowings and repayments on our

credit facility.

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:

owning or financing through debt investments, royalties generated by the sales of life science products and related intellectual

interest and other income by advancing capital in the form of secured debt to companies in the life science sector;

Pharmaceutical

development, manufacturing, and licensing activities utilizing the Peptelligence® platform;

a lesser extent, realizing capital appreciation from equity-related investments in the life science sector.

of June 30, 2021, our finance receivables portfolio contains $203.0 million of finance receivables, $2.6 million of marketable

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

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.

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.

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.

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

As of June 30, 2021, no amount was outstanding under the

revolving credit facility, and $20.0 million was available for borrowing.

The credit facility was amended on June 29, 2021 to

extend the maturity date to September 27, 2021.

We continue to explore other options with respect to a new credit facility.

Sheet Arrangements

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.

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.

October 29, 2021, Misonix, Inc.

(“Misonix”) was acquired by Bioventus, Inc.

(“Bioventus”).

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.

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