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Item 7. Management’s Discussion and Analysis

2024-03-20 compared with 2023-03-31 · 320 added, 305 removed, 91 unchanged (87% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with

our financial statements and the related notes included elsewhere in this Annual Report.

Statements below regarding future events or performance

are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Our actual results

could be quite different from those expressed or implied by the forward-looking statements.

Factors that could affect results are discussed

more fully under the sections entitled “Risk Factors,” and ”Special Note Regarding Forward-Looking Statements”

as revised and supplemented by those risks described from time to time in other reports which we file with the SEC.

Although forward-looking

statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable.

Readers are cautioned not to place undue reliance on the forward-looking statements.

We undertake no duty to update any forward-looking

statements made herein after the date of this Annual 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 management and Board 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 our 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.

nature of our business supports environmental sustainability by being mindful of products we and our business 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.

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion and analysis should be read in conjunction with our financial statements and the related notes included elsewhere

in this Annual Report.

Statements below regarding future events or performance are “forward-looking statements” within the

meaning of the Private Securities Litigation Reform Act of 1995.

Our actual results could be quite different from those expressed or

implied by the forward-looking statements.

Factors that could affect results are discussed more fully under the sections entitled “Risk

Factors, ” and ”Special Note Regarding Forward-Looking Statements” as revised and supplemented by those risks described

from time to time in other reports which we file with the SEC.

Although forward-looking statements help to provide complete information

about us, readers should keep in mind that forward-looking statements may not be reliable.

Readers are cautioned not to place undue reliance

on the forward-looking statements.

We undertake no duty to update any forward-looking statements made herein after the date of this Annual

have organized our operations into two segments:

Finance Receivables and Pharmaceutical Development.

These segments reflect the

way we evaluate our business performance and manage our operations.

Please refer to Part I, Item 1, Business and Part II,

Item 8, Financial Statements , Notes 1 and 11 of the notes to the consolidated financial statements for further information

regarding segment information.

These segments reflect the way we

evaluate our business performance and manage our operations.

Please refer to Part I, Item 1, Business and Part II, Item 8, Financial

Statements , Notes 1 and 11 of the notes to the consolidated financial statements for further information regarding segment information.

With an effective date of January 1, 2024, we entered into an exclusive

option and asset purchase agreement with Aptar on March 14, 2024 which granted Aptar an exclusive option to acquire certain of Enteris’

assets related to its business of providing good manufacturing practice (GMP) manufacturing and clinical supply services through Phase

1 and 2 to third parties, subject to certain exclusions.

Aptar must exercise the option by or before January 1, 2026.

Please refer to

Part II, Item 8, Financial Statements , Note 13 of the notes to the consolidated financial statements for further information regarding

the Option and Asset Purchase Agreement with Aptar.

Receivables Portfolio Overview

table below provides an overview of our outstanding transactions as of, and for the year ended, December 31, 2022 (in thousands,

except rate, share and per share data):

Royalty Purchases

Oncology treatment

tables below provide an overview of our outstanding transactions as of, and for the year ended, December 31, 2023 (in thousands, except

rate, share and per share data):

Ophthalmic antibiotic

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NSAID migraine treatment

Japanese Women’s health/cystic

Flowonix Medical, Inc.

Drug delivery device

Depressive disorder treatment

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Diabetic macular edema

Opioid overdose treatment

Japanese women’s health/cystic fibrosis

Ostomy Products Royalty

Ostomy products

Immune Globulin Portfolio

Immune Globulin Therapeutics

Women’s health

Acer Therapeutics, Inc.

Acerus Pharmaceuticals Corporation

Aziyo Biologics, Inc.

B&D Dental Corporation

BIOLASE, Inc.

Biotricity, Inc.

CDMO Manufacturer

Epica International, Inc.

eTon Pharmaceuticals, Inc.

Flowonix Medical, Inc.

Keystone Dental Group

Journey Medical Corporation

MedMinder Systems, Inc.

MolecuLight, Inc.

Sincerus Pharmaceuticals, Inc.

Nicoya Lifesciences, Inc.

NeoLight, LLC

Shield Therapeutics, Plc

Trio Healthcare Ltd.

Investment as

Tissue Regeneration Therapeutics, Inc.

Umbilical cord banking

Marketable Investments

Investment as

Secured Royalty Financing (Marketable Investment)

Bioventus, Inc.

(“Bioventus”) Common Stock

Harrow Health, Inc.

(“Harrow”) Common Stock

Epica International, Inc.

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Warrants to Purchase Stock

Investment as

Acer Therapeutics, Inc.

Acerus Pharmaceuticals Corporation

Aziyo Biologics

Aziyo Biologics, Inc.

BIOLASE, Inc.

Biotricity, Inc.

CDMO Manufacturer

CeloNova BioSciences, Inc.

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EyePoint Pharmaceuticals, Inc.

Flowonix Medical, Inc.

Harrow Health, Inc.

Shield Warrant

MedMinder Systems, Inc.

MolecuLight, Inc.

Total finance receivables

Total gross finance receivables

Total marketable investments

Cost method investment

Fair value of warrant assets

Total assets/revenues

Finance receivable was paid off during 2022.

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

SWK continues to receive insignificant royalties on international

Investment considered impaired.

Investment on nonaccrual.

Flowonix is evaluating strategic alternatives for the business.

A provision for credit losses was recognized during the fourth quarter of 2022.

Marketable investment was sold during the fourth quarter of 2022.

Please see part II, item 8, footnote 5 of the notes to the

consolidated financial statements for further information.

Finance receivable 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

discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,

which have been prepared in accordance with U.S.

Total gross assets/revenues

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

SWK continues to receive insignificant royalties on international sales.

(2) Investment

considered partially impaired.

(3) Investment

on non-accrual.

(4) Investment

was paid off during the year ended December 31, 2023.

(5) Flowonix Medical assets were sold to Algorithm Sciences, Inc.

year ended December 31, 2023.

In exchange for releasing its lien, the Flowonix estate received $2.5M cash and is expected to receive royalties

on sales of two products.

The finance receivable is now classified as a royalty.

July 2023, Ideal Implant assets were sold to an aesthetics company, which

is expected to pay SWK a mid-single digit, capped royalty on implant sales beginning in 2024.

was sold to a third party during the year ended December 31, 2023.

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

discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which

have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

The preparation

of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues

and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including

those related to revenue recognition, stock-based compensation, impairment of finance receivables and long-lived assets, impairment

of goodwill and identifiable intangible assets, valuation of warrants and investments, contingent consideration, income taxes

and contingencies and litigation, among others.

We base our estimates on historical experience and on various other assumptions

that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying

values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates

under different assumptions or conditions.

The accounting estimates and assumptions discussed in this section are those that we

consider to be the most critical to an understanding of our consolidated financial statements because they inherently involve

significant judgments and uncertainties.

For a discussion of our significant accounting policies, refer to Note 1 of the notes

to the consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data .

for Loan Losses

allowance for loan losses is reviewed for adequacy based on portfolio collateral values and credit quality indicators, including

non-performing assets, evaluation of portfolio diversification and concentration as well as economic conditions to determine the

need for a qualitative adjustment.

We review our finance receivables periodically to determine the probability of loss, and record

charge-offs after considering such factors as delinquencies, the financial condition of obligors, the value of underlying collateral,

as well as third party credit enhancements such as guarantees.

process of determining the level of the allowance for loan losses requires a high degree of judgment.

The preparation of financial

statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,

and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those related

to revenue recognition, stock-based compensation, impairment of finance receivables and long-lived assets, impairment of goodwill and

identifiable intangible assets, valuation of warrants and investments, contingent consideration, income taxes and contingencies and litigation,

among others.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that

are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding

of our consolidated financial statements because they inherently involve significant judgments and uncertainties.

For a discussion of

our significant accounting policies, refer to Note 1 of the notes to the consolidated financial statements in Part II, Item 8, Financial

Statements and Supplementary Data .

for Credit Losses

allowance for credit losses is reviewed for adequacy based on portfolio collateral values and credit quality indicators, including

non-performing assets, evaluation of portfolio diversification and concentration as well as economic conditions to determine the need

for a qualitative adjustment.

We review our finance receivables periodically to determine the probability of loss, and record charge-offs

after considering such factors as delinquencies, the financial condition of obligors, the value of underlying collateral, as well as

third-party credit enhancements such as guarantees.

process of determining the level of the allowance for credit losses requires a high degree of judgment.

Others given the same information

could reach different reasonable conclusions.

receivables are measured based upon the difference between the recorded investment in each receivable and either the present value

of the expected future cash flows discounted at each receivable’s effective interest rate (the receivable’s contractual

interest rate adjusted for any deferred fees, costs, discount or premium at the date of origination or acquisition) or if a receivable

is collateral dependent, the collateral’s fair value.

When impairment is determined to be probable, the measurement will

be based on the fair value of the collateral.

The determination of impairment involves management’s judgment and the use

of market and third party estimates regarding collateral values.

Valuations of impaired receivables and corresponding impairment

affect the level of the reserve for credit losses.

Finance Receivables

receivables are measured based upon the difference between the recorded investment in each receivable and either the present value of

the expected future cash flows discounted at each receivable’s effective interest rate (the receivable’s contractual interest

rate adjusted for any deferred fees, costs, discount or premium at the date of origination or acquisition) or if a receivable is collateral

dependent, the collateral’s fair value.

When impairment is determined to be probable, the measurement will be based on the fair

value of the collateral.

The determination of impairment involves management’s judgment and the use of market and third party estimates

regarding collateral values.

Valuations of impaired receivables and corresponding impairment affect the level of the reserve for credit

Revenue Recognition

Receivables Segment

Finance Receivables segment records interest income on an accrual basis based on the effective interest rate method to the extent

that we expect to collect such amounts.

Incentive fees, if any, are recognized when earned at the end of the relevant performance

period, pursuant to the underlying contract.

Other administrative service revenues are recognized when contractual obligations

are fulfilled or as services are provided.

Finance Receivables segment records interest income on an accrual basis based on the effective interest rate method to the extent that

we expect to collect such amounts.

Incentive fees, if any, are recognized when earned at the end of the relevant performance period,

pursuant to the underlying contract.

Other administrative service revenues are recognized when contractual obligations are fulfilled

or as services are provided.

Pharmaceutical

Development Segment

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.

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

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 us of one or more of the following:

non-refundable, upfront license fees;

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development, regulatory and commercial milestone payments;

royalties on net sales of licensed products.

determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, we

perform the following steps:

and royalties on net sales of licensed products.

determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, we perform

the following steps:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether

the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction

price to the performance obligations;

(ii) determination of whether the promised

goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measurement of

the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

As part of the accounting for these arrangements, the Company must use its judgment to determine:

(a) the number of performance

obligations based on the determination under step (ii) above;

As part of the accounting

for these arrangements, the Company must use its judgment to determine:

(a) the number of performance obligations based on the determination

under step (ii) above;

(b) the transaction price under step (iii) above;

selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv)

and d) the contract term and pattern of satisfaction of the performance obligations under step (v) above.

Management uses

judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction

price as described further below.

The transaction price is allocated to each performance obligation on a relative stand-alone

selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

identified in the contract for the allocation of transaction price in step (iv) above;

and d) the contract term and pattern of satisfaction

of the performance obligations under step (v) above.

Management uses judgment to determine whether milestones or other variable consideration,

except for royalties, should be included in the transaction price as described further below.

The transaction price is allocated to each

performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance

obligations under the contract are satisfied.

received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets.

Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred

Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified

as deferred revenue, net of current portion.

Value of Financial Instruments

expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue.

Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue,

net of current portion.

Fair Value of Financial Instruments

fair value of our financial instruments reflects the amounts 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).

financial instruments not required to be adjusted to fair value on a recurring basis consist principally of cash and restricted cash,

accounts and finance receivables, accounts payable, and accrued expenses.

We believe the carrying amount of cash and cash equivalents,

accounts and finance receivable, accounts payable and accrued expenses approximate fair value due to their relatively short maturities.

Our financial instruments not required to be adjusted to fair value on a recurring basis consist principally of cash, cash equivalents,

and accounts and finance receivables, accounts payable, and accrued expenses.

We believe the carrying amount of cash and accounts and

finance receivable, accounts payable and accrued expenses approximate fair value due to their relatively short maturities.

recognition of certain net deferred tax assets of our reporting entities are dependent upon, but not limited to, the future profitability

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Further, management’s

judgment regarding the use of estimates and projections is required in assessing our ability to realize the deferred tax assets

relating to NOL carryforwards, as most of these assets are subject to limited carryforward periods.

will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative

evidence that may exist at each reporting date.

Any adjustments to the deferred tax asset valuation allowance is recorded in the

statement of operations in the period it is determined an adjustment is required.

judgment regarding the use of estimates and projections is required in assessing our ability to realize the deferred tax assets relating

to NOL carryforwards, as most of these assets are subject to limited carryforward periods.

will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence

that may exist at each reporting date.

Any adjustments to the deferred tax asset valuation allowance is recorded in the statement of

operations in the period it is determined an adjustment is required.

refer to Note 12 of the notes to the consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary

Accounting Pronouncements

a discussion of recent accounting pronouncements, refer to Note 1 of the notes to the consolidated financial statements in Part

II, Item 8, Financial Statements and Supplementary Data .

of Operations

section of this Annual Report generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.

of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report can be found in “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual

Report on Form 10-K for the year ended December 31, 2021.

of the Years Ended December 31, 2022 and 2021

following table summarizes the results of our operations for the years ended December 31, 2022 and 2021:

Recent Accounting Pronouncements

a discussion of recent accounting pronouncements, refer to Note 1 of the notes to the consolidated financial statements in Part II, Item

8, Financial Statements and Supplementary Data .

Results of Operations

This section of this

Annual Report generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

Discussion of 2021 items and

year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report can be found in “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report

on Form 10-K for the year ended December 31, 2022.

Comparison of the Years Ended

December 31, 2023 and 2022

The following table summarizes the

results of our operations for the years ended December 31, 2023 and 2022:

(in millions)

For the Year Ended

Provision for credit losses

Allowance for credit losses

Interest expense

Impairment of goodwill

Pharmaceutical manufacturing, research and development expense

Change in fair value of acquisition-related contingent consideration

Increase (decrease) in fair value of acquisition-related contingent consideration

Depreciation and amortization expense

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Other (expense) income, net

Income tax (benefit) expense

Income tax expense

generated revenues of $37.8 million and $41.5 million for the years ended December 31, 2023 and 2022, respectively.

The $14.7 million

decrease in revenue for the year ended December 31, 2022, consisted of a $10.9 million decrease in Pharmaceutical Development segment

revenue and a $3.8 million decrease in Finance Receivables segment revenue.

The decrease in Pharmaceutical Development segment revenue

included $5.0 million of milestone revenue related to Enteris’ non-exclusive commercial license agreement (the “ License Agreement”)

with Cara Therapeutics, Inc.

(“Cara”) received during the year ended December 31, 2022, compared to $15.0 million of milestone

revenue for the same period of 2021.

The $3.8 million decrease in Finance Receivables segment revenue was primarily due to a $5.6

million net decrease in royalty revenue which was the result of the achievement of return premiums that caused a step down in

royalty rates, which was partially offset by a net increase of $1.8 million in interest and fees earned on finance receivables.

for Credit Losses and Impairment Expense

recognized provision for credit loss expense of $3.5 million on our cost method investment during the year ended December 31, 2022 (please

refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 3 of the notes to the consolidated financial statements

for further information on provision for credit losses).

We did not recognize any credit loss provision or impairment expense for the

year ended December 31, 2021.

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 decreased to $0.3 million for the year ended December 31, 2022 from $0.4 million for

the year ended December 31, 2021.

This slight decrease in interest expense was due to a lower average outstanding balance on our

credit facility during the year ended December 31, 2022 when compared to the year ended December 31, 2021.

The $3.7 million decrease

in revenue for the year ended December 31, 2023, consisted mainly of a $4.3 million decrease in Pharmaceutical Development segment revenue

and a $0.9 million increase in Finance Receivables segment revenue.

The decrease in Pharmaceutical Development segment revenue was primarily

due to $5.0 million of milestone revenue related to Enteris’ license agreement ("License Agreement") with Cara Therapeutics, Inc.

("Cara") received during the year ended December 31, 2022, and no similar milestone revenue was recognized during year end December 31,

The $0.9 million increase in Finance Receivables segment revenue was primarily due to $9.0 million increase in interest and fees

earned due to funding new and existing loans and a $3.8 million increase in interest earned on our finance receivables due to an overall

increase in reference rates.

The increase was partially offset by a net $1.2 million decrease in royalty revenue when compared to the

same period of the previous year and an $10.5 million decrease in interest, royalties and fees earned on finance receivables that were

paid off in 2022.

Allowance for

Credit Losses

allowance for credit losses is established through charges or credits to income in the form of the provision in order to bring our allowance

for credit losses for loans and unfunded commitments to a level deemed appropriate by management.

We recognized Allowance for credit loss

expense of $1.9 million and $3.5 million during the years ended December 31, 2023 and 2022, respectively (please refer to Part II, Item

8, Financial Statements and Supplementary Data, Note 3 of the notes to the consolidated financial statements for further information on

the allowance for credit losses).

Interest Expense

Interest expense consists

of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027 (“Notes”), unused line of

credit and maintenance fees, as well as amortization of debt issuance costs.

Interest expense increased to $1.8 million for the year

ended December 31, 2023 from $0.3 million for the year ended December 31, 2022.

This increase in interest expense was mainly due to issuing

approximately $32.9 million of Notes in an underwritten public offering in October of 2023.

Additionally,

during the year ended December 31, 2023 there was acceleration of debt issuance costs related to the Prior Credit Agreement with Cadence

Bank, as well as interest expense incurred on both the Prior Credit Agreement and the new Credit Agreement with First Horizon Bank.

Note 6 for further information on the Notes, new Credit Agreement, and Prior Credit Agreement.

Impairment of

recognized a $8.4 million impairment charge during the year ended December 31, 2023.

As part of the Company’s annual goodwill impairment

analysis, the Company elected to bypass the qualitative goodwill impairment assessment and proceed directly with a quantitative assessment.

The goodwill impairment test concluded that the fair value of the Company’s Pharmaceutical Development reporting unit did not exceed

the carrying amount and the Company recognized an impairment charge of $8.4 million and reduced the goodwill balance to $0.

to Note 2 for further information.

Pharmaceutical

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Pharmaceutical

manufacturing, research and development expense decreased from $7.3 million for the year ended December 31, 2021 to $7.0 million

for the year ended December 31, 2022.

The $0.3 million decrease was primarily due to a decrease in expenses related to internal

pipeline programs.

in Fair Value of Contingent Consideration

recognized a $5.2 million loss in change in fair value of acquisition-related contingent consideration during the year ended December

31, 2022 and recognized a $0.3 million gain in 2021.

The contingent consideration is the earnout related to the 2019 acquisition

of Enteris and sharing of certain milestone and royalties due to Enteris pursuant to the License Agreement with Cara for oral formulation

rights to Enteris’ Peptelligence® technology to develop and commercialize Oral KORSUVA™ in any indication worldwide,

excluding South Korea and Japan (please refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 7 of the notes

to the consolidated financial statements for further information on contingent consideration).

The carrying amount of the liability may

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

manufacturing, research and development expense decreased from $7.0 million for the year ended December 31, 2022 to $3.4 million for

the year ended December 31, 2023.

The $3.6 million decrease was primarily due to a reduction in headcount, as well as a reduction in

research and development and clinical trial expenditures.

Change in Fair Value of Contingent

Consideration

recognized a $6.3 million gain from the change in fair value of acquisition-related contingent consideration during the year ended December

31, 2023 and recognized a $5.2 million loss in 2022.

The contingent consideration is the earnout related to the 2019 acquisition of Enteris

and sharing of certain milestone and royalties due to Enteris pursuant to the License Agreement with Cara for oral formulation rights

to Enteris' Peptelligence® technology to develop and commercialize Oral KORSUVA™ in any indication worldwide, excluding South

Korea and Japan (please refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 7 of the notes to the consolidated

financial statements for further information on contingent consideration).

The carrying amount of the liability may fluctuate significantly,

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

and Amortization

$1.5 million decrease in depreciation and amortization expense for the year ended December 31, 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.

and Administrative

and amortization expense for the year ended December 31, 2023 and 2022 was $2.6 million.

Amortization expense is aligned with the expected

future cash flows of the intangible assets.

General and Administrative

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

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for the year ended December 31, 2023 from $13.0 million for the year ended December 31, 2022.

The $0.6 million decrease

was primarily due to a $1.4 million decrease in corporate strategic planning and related special committee board fees, as well as a $0.7

million decrease in stock-based compensation expense related to the forfeiture of stock-options held by former employees and

board members upon their departure in 2022.

The decrease was partially offset by a $1.3 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 $1.8 million decrease was primarily

driven by a one-time severance payment of $1.1 million paid to the former CEO during the three months ended September 30, 2022;

million decrease in one-time professional fees and other expense related to corporate strategic planning;

and a net $0.5 million decrease

in Pharmaceutical Development segment operational expenses due to a reduction in headcount and business development expense.

was partially offset by a $0.6 million increase in salaries and wages for the Finance Receivables segment due to additional headcount

and annual pay increases.

(Expense) Income, Net

expense, net for the year ended December 31, 2022 reflected a net fair market value gain of $0.4 million on the change in fair value

of our warrant assets and a net fair market value loss $0.5 million on the change in fair value of our Bioventus and Harrow common stock.

During the year ended December 31, 2022, we exercised our right to purchase Harrow common stock.

Upon exercise, we received 306,347 shares

of Harrow common stock with a fair value of $3.7 million, or $11.97 per share.

During the year ended December 31, 2022, we sold our shares

of Harrow and Bioventus common stock and received proceeds of $3.7 million and $0.5 million, respectively.

Other expense, net for the

year ended December 31, 2022 reflected a realized loss of $0.2 million on the sale of our Bioventus and Harrow common stock.

Other (expense) income, net for the year ended December 31, 2022 also includes a $0.2 million loss from the remeasurement of foreign currency transactions into our functional currency, net of changes in fair value of the foreign currency forward contract.

income, net for the year ended December 31, 2021 reflected a net fair market value gain of $0.3 million on the change in fair

value of our warrant assets and a net fair market value gain of $1.8 million on the change in fair value of our Misonix and Bioventus

common stock.

During the year ended December 31, 2021, we tendered our Misonix common stock and received $1.9 million in cash

and 71,361 shares of Bioventus common stock and recognized a $0.1 million loss on the tender of the Misonix common stock.

expense, net for the year ended December 31, 2023 was approximately $36.9 thousand which consisted of a realized loss of $0.8 million

from the write off of warrants and a net aggregate fair market value loss of approximately $54.4 thousand on our warrant derivatives.

This was offset by a $0.8 million gain from the remeasurement of foreign currency transactions into our functional currency.

Other income,

net for the year ended December 31, 2022 reflected a net aggregate fair market value gain of $0.4 million on our warrant derivatives

and a net fair value loss $0.5 million on the change in fair value of our Bioventus and Harrow common stock.

Additionally,

a realized loss $0.2 million was reflected on the sale of our Bioventus and Harrow common stock, in addition to a $0.2 million

loss from the remeasurement of foreign currency transactions into our functional currency, net of changes in fair value of the foreign

currency forward contract.

Tax (Benefit) Expense

the year ended December 31, 2022 and 2021, we recognized income tax benefit of $4.0 million and income tax expense of $7.1 million,

respectively.

The $11.1 million decrease in income tax expense is a result of lower taxable income for the year ended December

31, 2022 when compared to the same period of the prior year.

of December 31, 2022 and 2021, our cumulative gross deferred tax assets were $33.1 million and $38.9 million, respectively.

on historical and expected future operating performance, we concluded that it was more likely than not that we will not be able to realize

the full benefit of the U.S.

During the years ended December 31, 2023 and 2022, we recognized income tax benefit of $1.3 million and $4.0 million, respectively.

The $2.7 million

decrease in income tax benefit is mainly the result of releasing the valuation allowance against deferred tax assets.

As of December 31, 2023 and 2022, our cumulative gross deferred tax assets were $28.4 million and $33.1 million, respectively.

Based on historical

and expected future operating performance, we concluded that it was more likely than not that we will not be able to realize the full

benefit of the U.S.

federal and state deferred tax assets in the future.

The valuation

allowance against deferred tax assets was $6.7 million and $16.3 million as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, we believe it is more likely than not that we will realize approximately $24.5 million of benefit from

The valuation allowance against deferred tax assets was $0 and

$6.7 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, we believe it is more likely than not that we will

realize approximately $28.3 million of benefit from the U.S.

federal and state deferred tax assets in the future.

of December 31, 2022, we had NOLs for federal income tax purposes of $124.5 million.

The federal NOL carryforwards, if not offset against

future income, will expire by 2037.

As of December 31, 2023, we had NOLs for federal income tax purposes of $87.7 million.

The federal NOL carryforwards, if not offset

against future income, will expire by 2037.

Approximately $6.9 million of the $87.7 million can be carried forward indefinitely.

federal research credit carryforwards of $2.9 million.

The federal research credits begin to expire in 2023 and will

fully expire by 2042.

We also had federal research credit carryforwards of $3.0 million.

The federal federal research credits begin to expire in 2023 and

will fully expire by 2042.

and Capital Resources

of December 31, 2022, we had $6.2 million in cash and cash equivalents, compared to $42.9 million in cash and cash equivalents as of

December 31, 2021.

The primary driver of the $36.7 million decrease in our cash balance was $95.1 million of investment funding, net

of deferred fees and origination expenses and including $2.8 million of collateral on forward currency exchange contract;

$21.7 million for payments of accounts payable, payroll and benefits expense, including

$2.8 million for Enteris’ internal pipeline projects and capital expenditures;

$6.0 million of repayments our credit facility;

and $1.1 million to repurchase shares of our common stock on the open market.

The decrease was partially offset by $75.9 million of interest,

fees, principal and royalty payments received on our finance receivables and a net $3.4 million of payments generated by our Pharmaceutical

Development segment (the net $3.4 million includes $5.0 million of payments related to the completion of milestones under the License

Agreement less $2.5 million paid to the seller of Enteris, pursuant to the provisions of the merger agreement related to such sale).

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

The credit facility was amended on November 16, 2022 to extend

the termination date to September 30, 2025 and increase the borrowing size under the credit facility to $35.0 million.

As of December

31, 2022, approximately $32.6 million was available for borrowing under the credit facility.

We are continuing to explore other

options with respect to a new credit facility.

Driver of Cash Flow

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

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

as the success of our Pharmaceutical Development segment.

As of December 31, 2023, we had $5.2 million in cash, cash equivalents and restricted cash, compared to $6.2 million as of December 31, 2022.

The primary driver of the $0.9 million decrease in our cash balance was $55.8 million of interest, fees, principal and royalty payments

received on our finance receivables, a $9.9 million net increase on our credit facility, a $0.9 million increase in Enteris revenue receipts,

and $33.0 million cash received from the issuance of Senior Notes.

The increase in cash and cash equivalents was offset by $74.1 million

of investment funding, net of deferred fees and origination expenses;

payroll, accounts payable and credit facility closing costs of $18.4

and $6.3 million to repurchase shares of the Company’s common stock in the open market.

entered into a new $45.0 million revolving credit facility in June 2023 with First Horizon Bank.

The Credit Agreement provides for one

or more incremental increases not to exceed $80.0 million, subject to the consent of the Agent and each Lender, at any time prior to the

Commitment Termination Date.

On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest

National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate

commitments under the Credit Agreement from $45.0 million to $60.0 million.

As of December 31, 2023, $12.4 million was outstanding under

the new Credit Agreement, and $47.7 million was available for borrowing.

Our Prior Credit Agreement with Cadence Bank was terminated in connection with the establishment of the new Credit Agreement (please refer

to Part II, Item 8, Financial Statements and Supplementary Data, Note 6 of the notes to the consolidated financial statements for further

information regarding the Credit Agreement with First Horizon Bank).

On October 3, 2023,

the Company completed a registered underwritten public offering of $30.0 million of the Notes.

On October 27, 2023, the underwriters

exercised their option to purchase an additional approximately $3.0 million in aggregate principal amount of the Notes.

will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00 percent per annum, payable quarterly

in arrears on March 31, June 30, September 30 and December 31 of each year and at maturity, commencing on December 31, 2023.

received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6 million.

Primary Driver of Cash Flow

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

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

of our Pharmaceutical Development segment.

We generate income primarily from four sources:

Primarily owning or financing

through debt investments, royalties generated by the sales of life science products and related intellectual property;

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;

Primarily owning or financing through debt investments,

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

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;

To a lesser extent, realizing capital appreciation

from equity-related investments in the life science sector.

of December 31, 2022, our finance receivables portfolio contains $236.6 million of finance receivables and $0.1 million of marketable

of December 31, 2023, our finance receivables portfolio contains $274.5 million of net finance receivables and $48,000 of marketable investments.

We expect these assets to generate positive cash flows in 2024.

However, we continuously monitor the short and long-term

financial position of 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 the levels of LIBOR rates

or the replacement of LIBOR with another reference rate, such as SOFR, the Secured Overnight Financing Rate, 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

We continuously monitor the short and long-term financial position of

our finance receivables portfolio.

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

interest rates.

Changes in interest rates, including the levels of 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.

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

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

cash flow above what our existing assets are expected to produce in 2022.

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

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

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.

the timing of any investment is difficult to predict, our Finance Receivables segment may not be able to generate positive cash flow

above what our existing assets are expected to produce in 2023.

We do not assume any near-term repayments from borrowers, and as a result,

no assurances can be given that actual results would not differ materially from the statement above.

Off-Balance 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

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.

of December 31, 2023, we had $5.0 million of unfunded commitments.

Please refer to Part II, Item 8, Financial Statements ,

Note 7 of the notes to the consolidated financial statements for further information regarding the Company’s commitments and contingencies.

Please refer to Part II, Item 8, Financial Statements , Note

7 of the notes to the consolidated financial statements for further information regarding the Company’s commitments and contingencies.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis