What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-08 · 129 added, 257 removed, 104 unchanged (79% of the section changed)

6 unchanged sentences

Finance Receivables and Pharmaceutical Development.

These segments reflect the way the

Company evaluates its business performance and manages its operations.

Please refer to Part I.

Financial Information, Item 1.

Financial Statements, Note 9 of the notes to the unaudited condensed consolidated financial statements for further information regarding

segment information.

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 nine months

ended September 30, 2023 (in thousands, except rate, share and per share data).

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

31, 2024 (in thousands, except rate, share and per share data).

Royalty Purchases

Licensed Technology

Ophthalmic antibiotic

Best ABT, Inc.

Oncology diagnosis

Coflex®/Kybella®

stenosis/submental fullness

migraine treatment

women’s health/cystic fibrosis

Spinal stenosis/submental fullness

NSAID migraine treatment

Japanese Women’s health/cystic fibrosis

Flowonix Medical, Inc.

delivery device

disorder treatment

Drug delivery device

Depressive disorder treatment

Ideal Implant, Inc.

macular edema

Revenue Recognized

Acer Therapeutics, Inc.

Immune Globuin

Immune Globulin Therapeutics

Diabetic macular edema

Women’s health

BIOLASE, Inc.

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eTon Pharmaceuticals, Inc.

Journey Medical Corporation

MedMinder Systems, Inc.

MolecuLight, Inc.

Nicoya Lifesciences, Inc.

NeoLight, LLC

Shield Therapeutics, Plc

Trio Healthcare Ltd.

Revenue Recognized

Marketable Investments

Secured Royalty Financing (Marketable Investment)

Epica International, Inc.

Other Income (Loss) Recognized

Eyepoint Pharma Common Stock

Warrants to Purchase Stock

Exercise Price

per Share ($)

Acer Therapeutics, Inc.

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Acer Therapeutics, Inc.

Acerus Pharmaceuticals Corporation

Aziyo Biologics, Inc.

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eTon Pharmaceuticals, Inc.

EyePoint Pharmaceuticals, Inc.

Shield Warrant

MedMinder Systems, Inc.

MolecuLight, Inc.

Revenue Recognized

Total finance receivables, gross

3 unchanged sentences

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

SWK continues to receive insignificant royalties on international

SWK continues to receive insignificant

royalties on international sales.

considered partially impaired.

on nonaccrual.

on non-accrual.

was paid off during the nine months ended September 30, 2023.

Medical assets were sold to Algorithm Sciences, Inc.

during the nine months ended September 30, 2023.

for releasing its lien, SWK received cash at close and is expected to receive royalties on sales of two products.

receivable is now classified as a royalty.

In 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

was sold to a third party during the nine months ended September 30, 2023.

SWK continues to receive insignificant royalties.

Medical assets were sold to a medical device company during the nine months ended September 30, 2023.

In exchange for releasing its

lien, SWK received cash at close 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.

warrants exercised in 1Q24 and converted to shares.

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.

Environmental,

Social and Governance

overseers of risk and stewards of long-term enterprise value, our management and Board of Directors (“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.

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.

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.

Accounting Policies and Estimates

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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

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

2024, compared to those discussed in our Annual Report.

3 unchanged sentences

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

of the three months ended September 30, 2023 and 2022 ( in millions )

of the three months ended March 31, 2024 and 2023 ( in millions )

Three Months Ended

September 30,

Provision for credit losses

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Depreciation and amortization expense

General and administrative

General and administrative expense

Other (expense) income, net

Income tax expense

decreased to $9.0 million for the three months ended September 30, 2023 from $13.6 million for the three months ended September 30, 2022.

The $4.6 million decrease in revenue for the three months ended September 30, 2023 consisted of a $4.7 million decrease in Pharmaceutical

Development segment revenue and a $0.1 million increase in Finance Receivables segment revenue.

The $4.7 million decrease in Pharmaceutical

Development segment revenue was primarily due to $5.0 million of milestone revenue related to Enteris’ License Agreement

with Cara received during the three months ended September 30, 2022, and no similar milestone revenue was recognized during the three

months ended September 30, 2023.

The $0.1 million increase in Finance Receivables segment revenue was primarily the result of an increase

in reference rates.

Income tax expense (benefit)

increased to $11.8 million for the three months ended March 31, 2024 from $9.4 million for the three months ended March 31, 2023.

$2.4 million increase in revenue for the three months ended March 31, 2024 consisted of a $2.2 million increase in Finance Receivables

segment revenue and a $0.2 million increase in Pharmaceutical Development segment revenue.

The $2.2 million increase in Finance Receivables

segment revenue was primarily due to a $4.1 million increase in interest and fees earned due to funding new and existing loans

offset by $1.9 million decrease in interest, fees and royalties earned on finance receivables that were paid off in 2023.

for Credit Losses

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

Our allowance for credit losses increased

by $0.2 million during the three months ended September 30, 2023.

The increase in the provision for credit losses resulted from

the reclassification of a term loan to a royalty during the three months ended September 30, 2023, as our royalties have slightly higher

historic loss rates than our term loans.

Please refer to Part I.

Financial Information, Item 1.

Financial Statements, Note 3 of

the notes to the unaudited condensed consolidated financial statements for further information regarding the provision for credit losses

and the reclassification of the Flowonix term loan to a royalty.

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 increased to $0.2 million for three months ended September 30, 2023 from $0.1

million for the three months ended September 30, 2022.

The $0.1 million increase in interest expense was due to an increase in debt

issuance costs and unused line fees related to the First Horizon Credit Agreement signed on June 28, 2023, which increased our line

of credit from $30.0 million to $45.0 million.

On June 28, 2023, we terminated the Prior Credit Agreement with Cadence Bank and

entered into a new Credit Agreement with First Horizon Bank.

Please refer to Part I.

Financial Information, Item 1.

Statements, Note 5 of the notes to the unaudited condensed consolidated financial statements for further information regarding the

Credit Agreement with First Horizon.

We recognized a net provision for credit

losses of $5.3 million during the three months ended March 31, 2024 and no recognition for provision for credit loss during three months

ended March 31, 2023, respectively.

The $6.0 million impairment on the Trio loan was included within the provision for credit losses.

Note 3 to the unaudited condensed consolidated financial statements for further information on the allowance for credit losses.

expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance

fees, as well as amortization of debt issuance costs.

Interest expense increased to $1.3 million for the three months ended March 31,

2024 from $0.2 million for the three months ended March 31, 2023.

The $1.1 million increase in interest expense was mainly due to

issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023, and the establishment of the Credit Agreement as of March 31, 2023.

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

Credit Agreement.

Pharmaceutical

1 unchanged sentence

Pharmaceutical

manufacturing, research and development expense decreased from $1.8 million for the three months ended September 30, 2022 to $0.6

million for the three months ended September 30, 2023.

The $1.2 million decrease was primarily due to a reduction in headcount,

as well as a reduction in research and development and clinical trial expenditures.

manufacturing, research and development expense decreased from $0.7 million for the three months ended March 31, 2023 to

$0.5 million for the three months ended March 31, 2024.

The $0.2 million decrease was primarily due to reduction in research

and development and clinical trial expenditures during the period.

and Amortization

and amortization expense increased from $0.6 million for the three months ended September 30, 2022 to $0.7 million for the three

months ended September 30, 2023.

Depreciation and amortization primarily consists of amortization expense related to the intangible

assets of Enteris.

Amortization expense is aligned with the expected future cash flows of the intangible assets.

$0.1 million decrease in depreciation and amortization expense for the three months ended March 31, 2024 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;

General and administrative expenses consist primarily of compensation;

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

1 unchanged sentence

and corporate governance expenses.

General and administrative expenses decreased to $3.0 million for the three

months ended September 30, 2023 from $4.3 million for the three months ended September 30, 2022.

The $1.3 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, as well

as a $0.4 million decrease in one-time professional fees expense related to corporate strategic planning.

The decrease was partially

offset by $0.2 million increase in Board fees and other related expense due to a revised Board compensation plan.

General and administrative expenses increased to $2.7 million for the three months ended March 31, 2024 from $2.5 million for

the three months ended March 31, 2023.

The $0.2 million increase included a $0.1 million decrease to salaries & wages and a $0.2 million

increase in professional fees.

(Expense) Income, Net

expense, net for three months ended September 30, 2023 reflected a net aggregate fair market value loss of $0.2 million on our

warrant derivatives and a $0.1 million net 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 three months ended September 30, 2022 reflected a net aggregate fair market value gain of $1.8 million on our warrant

derivatives and Bioventus, Inc.

(“Bioventus”) common stock.

Our Bioventus common stock was sold during the year ended

December 31, 2022.

Other expense, net decreased to $0.4 million for the three months

ended March 31, 2024 from $0.8 million for the three months ended March 31, 2023.

The $0.4 million decrease reflected a net aggregate

decrease in unrealized loss on warrants of $0.8 million related to changes in fair value of warrants assets and foreign currency adjustments

offset by $0.4 million in realized losses on sales of marketable investments and exercise of warrants.

Tax (Benefit) Expense

the three months ended September 30, 2023 and 2022, we recognized income tax benefit of $0.4 million and $1.9 million

of income tax expense, respectively.

The decrease in income tax expense is primarily due to a decrease in taxable income for the three

months ended September 30, 2023 when compared to the same period of the previous year, as well as the additional release of the valuation

allowance on our deferred tax assets resulting from an increase in management's forecasted future taxable income in 2023 when compared

of the nine months ended September 30, 2023 and 2022 ( in millions )

Nine Months Ended

September 30,

Benefit from credit losses

Interest expense

Pharmaceutical manufacturing, research and development expense

Depreciation and amortization expense

General and administrative

Other (expense) income, net

Income tax expense

decreased to $27.9 million for the nine months ended September 30, 2023 from $31.7 million for the nine months ended September 30, 2022.

The $3.8 million decrease in revenue for the nine months ended September 30, 2023 consisted of a $5.3 million decrease in Pharmaceutical

Development segment revenue and a $1.5 million increase in Finance Receivables segment revenue.

The $5.3 million decrease in Pharmaceutical

Development segment revenue was primarily due to $5.0 million of milestone revenue related to Enteris’ License Agreement

with Cara received during the nine months ended September 30, 2022, and no similar milestone revenue was recognized during the nine months

ended September 30, 2023.

The $1.5 million increase in Finance Receivables segment revenue was primarily due to $6.5 million increase

in interest and fees earned due to funding new and existing loans and a $4.1 million increase in interest earned on our finance receivables

due to an overall increase in reference rates.

The increase was partially offset and a net $0.7 million decrease in royalty revenue when

compared to the same period of the previous year and an $8.5 million decrease in interest, royalties and fees earned on finance receivables

that were paid off in 2022 and 2023.

from 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 a $0.5 million

benefit for credit losses during the nine months ended September 30, 2023.

The decrease in the provision for credit losses resulted from

an overall decrease in our finance receivables.

The decrease was partially offset by the addition of a term loan, as well as the reclassification

of a term loan to a royalty during the nine months ended September 30, 2023, as our royalties have slightly higher historic loss rates

than our term loans.

Please refer to Part I.

Financial Information, Item 1.

Financial Statements, Note 3 of the notes to the unaudited

condensed consolidated financial statements for further information regarding the provision for credit losses and the reclassification

of the Flowonix term loan to a royalty.

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 increased to $0.7 million for the nine months ended September 30, 2023 from $0.2 million

for the nine months ended September 30, 2022.

This $0.5 million increase in interest expense was due to the 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.

On June 28, 2023, we terminated the Prior Credit Agreement

with Cadence Bank and entered into a new Credit Agreement with First Horizon Bank.

Please refer to Part I.

Financial Information, Item 1.

Financial Statements,

Note 5 of the notes to the unaudited condensed consolidated financial statements for further information regarding the Credit

Agreement with First Horizon.

Pharmaceutical

Manufacturing, Research and Development Expense

Pharmaceutical

manufacturing, research and development expense decreased from $5.2 million for the nine months ended September 30, 2022 to $2.8

million for the nine months ended September 30, 2023.

The $2.4 million decrease was primarily due to a reduction in headcount,

as well as a reduction in research and development and clinical trial expenditures.

and Amortization

recognized $1.9 million and $2.0 million of depreciation and amortization expense during both the nine months ended September

30, 2023 and 2022, respectively.

Depreciation and amortization primarily consists of 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 and Board;

legal and audit expenses;

and corporate governance expenses.

General and administrative expenses decreased to $8.5 million for the nine

months ended September 30, 2023 from $10.5 million for the nine months ended September 30, 2022.

The $2.0 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 $0.4 million

decrease in Enteris operational expenses due to a reduction in headcount and business development expense.

The decrease was partially

offset by $0.2 million increase in Board fees and other related expense due to a revised Board compensation plan.

(Expense) Income, Net

expense, net for the nine months ended September 30, 2023 reflected a net aggregate fair market value loss of $0.8 million on

our warrant derivatives and a $0.4 million gain 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 nine months ended September 30, 2022 reflected a net aggregate fair market value gain of $0.1 million on our warrant

derivatives and Bioventus, Inc.

(“Bioventus”) common stock.

Our Bioventus common stock was sold during the year ended

December 31, 2022.

the nine months ended September 30, 2023 and 2022, we recognized income tax expense of $1.0 million and $3.2 million, respectively.

The decrease in income tax expense is primarily due to the additional release of the valuation allowance on our deferred tax assets

resulting from an increase in management's forecasted future taxable income in 2023 when compared to 2022.

During the three months ended March 31, 2024 we recognized $0.2 million

of income tax expense, while for the three months ended March 31, 2023 we recognized income tax benefit of $0.1 million.

in income tax expense (benefit) is primarily attributed to changes in pre-tax net income, the Company's effective tax rate, which was

20.9% and 10.1% as of March 31, 2024 and 2023, respectively, and a release of valuation allowance on deferred tax assets of $0.6 million

during the three months ended March 31, 2023.

and Capital Resources

of September 30, 2023, we had $31.0 million in cash and cash equivalents, compared to $6.2 million in cash and cash equivalents as of

December 31, 2022.

The primary driver of the $24.9 million increase in our cash balance was $43.9 million of interest, fees, principal

and royalty payments received on our finance receivables and a $19.6 million net increase on our credit facility.

in cash and cash equivalents was partially offset by $18.8 million of investment funding, net of deferred fees and origination expenses;

payroll, accounts payable and credit facility closing costs of $14.1 million;

and $6.1 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.

As of September 30, 2023, $22.0 million was outstanding under the new Credit Agreement,

and $23.0 million was available for borrowing.

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.

Our Prior Credit Agreement with Cadence Bank was terminated in

connection with the establishment of the new Credit Agreement (please refer to Part I.

Financial Information, Item 1.

Financial Statements, Notes 5 and 10 of

the notes to the unaudited condensed consolidated financial statements for further information regarding the Credit Agreement

with First Horizon Bank).

October 3, 2023, the Company completed a registered underwritten public offering of $30.0 million of the Company’s 9.00 percent

Senior Notes due 2027 (the “Notes”).

On October 27, 2023, the underwriters exercised their option to purchase an additional

$2,9 million in aggregate principal amount of the Notes.

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.

The Company received net proceeds after discounts and commissions,

but before expenses and fees, of approximately $31.9 million.

As of March 31, 2024, we had $5.5

million in cash and cash equivalents, compared to $4.5 million in cash and cash equivalents as of December 31, 2023.

The primary driver

of the $1.0 million increase in our cash balance was $19.0 million of interest, fees, principal and royalty payments received on our finance

The increase in cash and cash equivalents was partially offset by $0.4 million of investment funding, net of deferred fees

and origination expenses;

$0.8 million holdback repayment;

a net credit facility payment of $12.4 million;

a payroll and benefits expense

of $2.4 million;

$2.3 million of accounts payable;

and $1.0 million to repurchase shares of the Company's common stock on the open market,

pursuant to the Company’s stock repurchase program .

entered into a $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 March 31, 2024, $0.0 million was outstanding under

the new Credit Agreement , and $55.0 million was available for borrowing.

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).

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.

The Notes will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00% 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.

The Company received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6

Primary Driver of Cash

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

6 unchanged sentences

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.

of September 30, 2023, our finance receivables portfolio contains $223.6 million of net finance receivables and $0.1 million of

marketable investments.

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

of March 31, 2024, our finance receivables portfolio contains $261.3 million of net finance receivables and $0.4 million of marketable

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 SOFR, Prime, or LIBOR-based interest rate floor.

Changes in interest

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.

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

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

14 unchanged sentences

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

of September 30, 2023, we had $7.4 million of unfunded commitments.

Please refer to Part I.

Financial Information, Item 1.

Financial Statements, Note 6 of the

notes to the unaudited condensed consolidated financial statements for further information regarding the Company’s commitments

of March 31, 2024, we had $5 million of unfunded commitments.

Please refer to Item 1., Financial Statements, Note 6 of the notes

to the unaudited condensed 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-Q

Item 2. Management’s Discussion and Analysis