What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-10 · 225 added, 187 removed, 89 unchanged (82% of the section changed)

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, 2021 (“Annual Report”), as well as our unaudited condensed consolidated financial

statements and the accompanying notes included in this report.

Environmental, Social

and Governance

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.

the ESG issues we support within the Company, we are committed to recruiting, motivating and developing a diversity of talent.

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.

Our commitment to ESG initiatives is an endeavor both the Board and management

undertake for the general betterment of those both inside and outside the Company.

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.

have organized our operations into two segments:

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, 2021 (“Annual Report”), as well as our unaudited condensed consolidated financial statements and the

accompanying notes included in this report.

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.

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

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.

Our commitment to ESG initiatives is an endeavor both the Board and management undertake for

the general betterment of those both inside and outside the Company.

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.

We have organized our operations

into two segments:

Finance Receivables and Pharmaceutical Development.

These segments reflect the way the

Company evaluates its business performance and manages its operations.

These segments reflect the way the Company evaluates its business

performance and manages its operations.

Please refer to Item 1.

Financial Statements, Note 9 of the notes

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

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, 2022 (in thousands, except rate, share and per share data).

Financial Statements, Note 9 of the notes to the unaudited condensed consolidated

financial statements for further information regarding segment information.

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, 2022 (in

thousands, except rate, share and per share data).

Revenue Recognized

Royalty Purchases

Licensed Technology

Funded Amount

Oncology treatment

2 unchanged sentences

Oncology diagnosis

Coflex®/Kybella®/Zalviso®

Coflex®/Kybella®

Spinal stenosis/submental fullness

8 unchanged sentences

Revenue Recognized

Maturity Date

Acer Therapeutics, Inc.

Acerus Pharmaceuticals Corporation

Aziyo Biologics, Inc.

B&D Dental Corporation

5 unchanged sentences

Keystone Dental Group

MedMinder Systems, Inc.

MolecuLight, Inc.

3 unchanged sentences

Cost Method Investment

Licensed Technology

Maturity Date

Tissue Regeneration Therapeutics, Inc.

2 unchanged sentences

Marketable Investments

Number of Shares

Funded Amount

Secured Royalty Financing (Marketable Investment)

4 unchanged sentences

Warrants to Purchase Stock

Exercise Price

per Share ($)

Number of Shares

Exercise Price per Share ($)

Acer Therapeutics, Inc.

Acerus Pharmaceuticals Corporation

Aziyo Biologics

BIOLASE, Inc.

15 unchanged sentences

Total assets/revenues

was paid off during the third quarter of 2022.

was paid off during the year ended December 31, 2021.

SWK continues to receive insignificant royalties on international sales.

considered impaired.

on nonaccrual.

was paid off during the six months ended June 30, 2022.

Royalty was paid off during the third quarter of 2022.

US royalty was paid off during the year ended December 31, 2021.

continues to receive insignificant royalties on international sales.

Investment considered impaired.

Investment on nonaccrual.

Loan was paid off during the nine months ended September 30, 2022.

Flowonix is evaluating strategic alternatives for the business.

Loan was paid off during the year ended December 31, 2021.

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.

Accounting Policies and Estimates

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

Condition and Results of Operations” of our Annual Report.

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, 2022, compared to those discussed

in our Annual Report.

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

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, 2022, compared to those discussed in our Annual

Recent 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.

Comparison of the

Three Months Ended June 30, 2022 and 2021 ( in millions )

Refer to Part I.

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, 2022 and 2021 ( in millions )

Three Months Ended

September 30,

Interest expense

Pharmaceutical manufacturing, research and development expense

Change in fair value of acquisition-related contingent consideration

Depreciation and amortization expense

General and administrative

Other (expense) income, net

Other income, net

Income tax expense

decreased to $6.9 million for the three months ended June 30, 2022 from $22.3 million for the three months ended June 30, 2021.

million decrease in revenue consisted of a $10.3 million decrease in Pharmaceutical Development segment revenue and a $5.0 million decrease

in Finance Receivables segment revenue.

The decrease in Pharmaceutical Development segment revenue included $10.0 million of milestone

revenue related to Enteris’ License Agreement with Cara received during the three months ended June 30, 2021, which did not recur

during the three months ended June 30, 2022.

The $5.0 million decrease in Finance Receivables segment revenues primarily consists of

a $3.1 million decrease in interest and fees earned on finance receivables that were either paid off or paid down since the second quarter

of 2021 and a $4.0 million decrease in net royalty income primarily due to the achievement of return premiums that caused a step down

in royalty rates.

The decrease in revenue was partially offset by a $2.1 million increase in interest and fees earned due to funding

new and existing loans.

Revenues increased to $13.6

million for the three months ended September 30, 2022 from $9.6 million for the three months ended September 30, 2021.

The $4.0 million

increase in revenue was due to $5.0 million of milestone revenue related to Enteris’ License Agreement with Cara received during

the three months ended September 30, 2022, which did not occur during the three months ended September 30, 2021.

The increase in revenue

was partially offset by a $0.9 million net decrease in Finance Receivables segment revenues.

The decrease in Finance Receivables segment

revenue was due to a $1.3 million net decrease in royalty income primarily due to the achievement of return premiums that caused a step

down in royalty rates, which was partially offset by a net increase of $0.4 million in interest and fees earned on finance receivables.

Interest Expense

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, 2022 and 2021 was $0.1 million, respectively.

Pharmaceutical

Manufacturing, Research and Development Expense

Pharmaceutical

manufacturing, research and development expense for both the three months ended June 30, 2022 and 2021 was $1.5 million,

respectively.

Pharmaceutical manufacturing, research and development expense primarily consists of manufacturing materials for

our pipeline projects and clinical trials.

and Amortization

$0.2 million decrease in depreciation and amortization expense for the three months ended June 30, 2022 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.

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

Interest expense for both the three months ended September 30, 2022 and 2021 was $0.1 million, respectively.

Pharmaceutical Manufacturing, Research

and Development Expense

Pharmaceutical manufacturing,

research and development expense decreased from $2.5 million for the three months ended September 30, 2021 to $1.8 million for

the three months ended September 30, 2022.

The $0.7 million decrease was primarily due to a decrease in manufacturing

materials for pipeline projects and clinical trials.

Depreciation and Amortization

The $0.2 million decrease

in depreciation and amortization expense for the three months ended September 30, 2022 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

General and Administrative

and administrative expenses consist primarily of compensation;

General and administrative

expenses consist primarily of compensation;

stock-based compensation and related costs for management, staff and Board;

legal and audit expenses;

legal and audit

and corporate governance expenses.

General and administrative expenses decreased to $3.0 million for the

three months ended June 30, 2022 from $3.4 million for the three months ended June 30, 2021.

The $0.4 million decrease was primarily

due to a $0.4 million decrease in corporate strategic planning and related board fees and a $0.2 million decrease in the performance-based

bonus accrual.

The decrease was partially offset by a $0.2 million increase in legal fees related to corporate governance.

Other (Expense)

expense, net for three months ended June 30, 2022 reflected a net aggregate fair market value loss of $1.0 million on our warrant derivatives

and Bioventus common stock.

Other 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, which was tendered in October

2021 in exchange for $1.9 million in cash and 71,361 shares of Bioventus common stock.

General and administrative expenses increased to $4.3 million for the three months ended

September 30, 2022 from $3.6 million for the three months ended September 30, 2021.

The $0.7 million increase was primarily due to

a $1.3 million increase in salaries and benefits expense, of which $1.1 million is related to the former CEO’s severance pay pursuant

to the Separation and Release Agreement dated August 31, 2022, and a $0.2 million increase in salaries and benefits expense due to an

increase in personnel and the performance-based bonus accrual.

The increase in general and administrative expense also included a $0.7

million increase in audit and legal fees related to amending the Company’s Articles of Incorporation and Bylaws and other corporate governance,

financing and strategic matters.

The increase was partially offset by a $0.9 million decrease in corporate strategic planning and related

special committee board fees, as well as a $0.1 million decrease in stock-based compensation expense related to the forfeiture of stock-options

held by the former CEO upon his departure on September 30, 2022.

Other (Expense) Income, Net

Other expense, net for three

months ended September 30, 2022 reflected a net aggregate fair market value gain of $1.8 million on our warrant derivatives and Bioventus

common stock.

Other income, 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, which was tendered in October 2021 in

exchange for $1.9 million in cash and 71,361 shares of Bioventus common stock.

Income Tax Expense

the three months ended June 30, 2022 and 2021, we recognized income tax expense of $0.2 million and $3.5 million, respectively.

The $3.3 million decrease in income tax expense is a result of lower taxable income when compared to the same period of 2021.

Comparison of the

Six Months Ended June 30, 2022 and 2021 ( in millions )

Six Months Ended June 30,

During the three months ended

September 30, 2022 and 2021, we recognized income tax expense of $1.9 million and $0.5 million, respectively.

The $1.4 million increase

in income tax expense is the result of an increase in taxable income for the three months ended September 30, 2022 when compared to the

same period of the previous year.

Comparison of the Nine Months Ended September

30, 2022 and 2021 ( in millions )

Nine Months Ended September 30,

Interest expense

3 unchanged sentences

General and administrative

Other (expense) income, net

Other income, net

Income tax expense

decreased to $18.1 million for the six months ended June 30, 2022 from $31.6 million for the six months ended June 30, 2021.

million decrease in revenue consisted of a $10.3 million decrease in Pharmaceutical Development segment revenue and a $3.2 million decrease

in Finance Receivables segment revenue.

The decrease in Pharmaceutical Development segment revenue included $10.0 million of milestone

revenue related to Enteris’ License Agreement with Cara received during the six months ended June 30, 2021, which did not recur

during the six months ended June 30, 2022.

The $3.2 million decrease in Finance Receivables segment revenues primarily consists of a

$5.0 million decrease in interest and fees earned on finance receivables that were either paid off or paid down since the second quarter

of 2021 and a $3.8 million decrease in net royalty income primarily due to the achievement of return premiums that caused a step down

in royalty rates.

The decrease in revenue was partially offset by a $3.4 million increase in interest and fees earned due to funding

new and existing loans and a $2.4 million increase in interest and fees earned on the payoff of a term loan during the six months ended

June 30, 2022.

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 six months ended June 30, 2022 and 2021 was $0.2 million, respectively.

Pharmaceutical

Manufacturing, Research and Development Expense

Pharmaceutical

manufacturing, research and development expense increased from $3.1 million for the six months ended June 30, 2021 to $3.4 million for

the six months ended June 30, 2022.

The $0.3 million increase was primarily due to an increase in manufacturing materials for pipeline

projects and clinical trials.

and Amortization

$1.2 million decrease in depreciation and amortization expense for the six months ended June 30, 2022 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.

Revenues decreased to $31.7

million for the nine months ended September 30, 2022 from $41.2 million for the nine months ended September 30, 2021.

The $9.5 million

decrease in revenue consisted of a $5.4 million decrease in Pharmaceutical Development segment revenue and a $4.1 million decrease in

Finance Receivables segment revenue.

The decrease in Pharmaceutical Development segment revenue included $5.0 million of milestone revenue

related to Enteris’ License Agreement with Cara received during the nine months ended September 30, 2022, compared to $10.0 million

of milestone revenue for the same period of 2021.

The decrease in Finance Receivables segment revenue was due to a $5.1 million net decrease

in royalty income primarily due to the achievement of return premiums that caused a step down in royalty rates, which was partially offset

by a net increase of $1.0 million in interest and fees earned on finance receivables.

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

Interest expense for the nine months ended September 30, 2022 and 2021 was $0.2 million and $0.3 million, respectively.

Pharmaceutical Manufacturing, Research

and Development Expense

Pharmaceutical manufacturing,

research and development expense decreased from $5.6 million for the nine months ended September 30, 2021 to $5.2 million for the nine

months ended September 30, 2022.

The $0.4 million decrease was primarily due to a decrease in manufacturing materials for pipeline projects

and clinical trials.

Depreciation and Amortization

The $1.3 million decrease

in depreciation and amortization expense for the nine months ended September 30, 2022 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

General and Administrative

and administrative expenses consist primarily of compensation;

General and administrative

expenses consist primarily of compensation;

stock-based compensation and related costs for management, staff and Board;

legal and audit expenses;

legal and audit

and corporate governance expenses.

General and administrative expenses for both the six months ended June 30,

2022 and 2021 was $6.2 million.

Other (Expense)

expense, net for six months ended June 30, 2022 reflected a net aggregate fair market value loss of $1.7 million on our warrant

derivatives and Bioventus common stock.

Other 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, which was tendered

in October 2021 in exchange for $1.9 million in cash and 71,361 shares of Bioventus common stock.

General and administrative expenses increased to $10.5 million for the nine months ended

September 30, 2022 from $9.8 million for the nine months ended September 30, 2021.

The $0.7 million increase was primarily due to a $1.1

million increase in salaries and benefits expense related to the former CEO’s severance pay pursuant to the Separation and Release Agreement

dated August 31, 2022.

The increase in general and administrative expense also included a $0.9 million increase in audit and legal fees

related to amending the Company’s Articles of Incorporation and Bylaws and other corporate governance, financing and strategic matters.

The increase was partially offset by a $1.4 million decrease in corporate strategic planning and related special committee board fees,

as well as a $0.1 million decrease in stock-based compensation expense related to the forfeiture of stock-options held by the former CEO

upon his departure on September 30, 2022.

Other Income, Net

Other income, net for the

nine months ended September 30, 2022 reflected a net aggregate fair market value gain of $0.1 million on our warrant derivatives and Bioventus

common stock.

Other income, net for the 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, which was tendered in October 2021

in exchange for $1.9 million in cash and 71,361 shares of Bioventus common stock.

Income Tax Expense

the six months ended June 30, 2022 and 2021, we recognized income tax expense of $1.3 million and $4.5 million, respectively.

The $3.2 million decrease in income tax expense is a result of lower taxable income when compared to the same period of 2021.

Liquidity and Capital

of June 30, 2022, we had $55.1 million in cash and cash equivalents, compared to $42.9 million in cash and cash equivalents as of December

The primary driver of the $12.3 million increase in our cash balance was $49.0 million of interest, fees, principal and royalty

payments received on our finance receivables and $0.6 million of customer payments generated by our Pharmaceutical Development segment.

The increase in our cash balance was partially offset by $25.0 million of investment funding, net of deferred fees and origination expenses;

$5.9 million of accounts payable, including $1.1 million for Enteris’s internal pipeline projects;

payroll and benefits expense of $6.3

million and $0.1 million of credit facility interest and other expenses.

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.

During the nine months ended

September 30, 2022 and 2021, we recognized income tax expense of $3.2 million and $5.0 million, respectively.

The $1.8 million

decrease in income tax expense is the result of a decrease in taxable income for the nine months ended September 30, 2022 when compared

to the same period of the previous year.

Liquidity and Capital Resources

As of September 30, 2022, we

had $19.4 million in cash and cash equivalents, compared to $42.9 million in cash and cash equivalents as of December 31, 2021.

primary driver of the $23.5 million decrease in our cash balance was $71.2 million of investment funding, net of deferred fees and

origination expenses;

$8.2 million for payments of accounts payable, including $1.9 million for Enteris’s internal pipeline

and business development projects;

payroll and benefits expense of $8.3 million;

$0.6 million to repurchase shares of the

Company’s common stock on the open market;

and $0.3 million of credit facility interest and other expenses.

The decrease in

cash and cash equivalents was partially offset by $64.4 million of interest, fees, principal and royalty payments received on our

finance receivables and $0.7 million of customer payments generated by our Pharmaceutical Development segment.

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

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 property;

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, 2022, our finance receivables portfolio contains $174.9 million of finance receivables, $0.6 million of marketable investments,

and $3.5 million related to our cost method investment.

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

Receiving 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;

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

As of September 30, 2022,

our finance receivables portfolio contains $213.0 million of finance receivables, $0.6 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 2022.

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

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

interest rate floor.

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

Changes in interest rates, including the underlying reference 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.

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, we cannot predict this with certainty.

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 options

to either extend our current credit facility or obtain a new credit facility.

As of June 30, 2022, $22.0 million was available for borrowing

under the credit facility.

Off-Balance Sheet

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

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.

We entered into a $20.0 million

revolving credit facility in June 2018.

The credit facility was amended on September 26, 2022 to extend the termination date to November

We continue to work with our current lender to extend our credit facility.

As of September 30, 2022, $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

6 of the notes to the unaudited condensed consolidated financial statements.

Financial Statements, Note 6 of the notes to the unaudited condensed

consolidated financial statements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis