SWK Holdings Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SWK HOLDINGS CORPORATION INDEX TO FINANCIAL STATEMENTS Contents Page Report of Independent Registered Public Accounting Firm (PCAOB ID # 207 ) 32 Financial Statements Consolidated Balance Sheets 34 Consolidated Statements of Income 35 Consolidated Statements of Stockholders’ Equity 36 Consolidated Statements of Cash Flows 37 Notes to the Consolidated Financial Statements 38 31 Report Of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of SWK Holdings Corporation Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of SWK Holdings Corporation and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Finance Receivables and Related Finance Receivable Interest Income As described in Note 4 to the consolidated financial statements, the Company’s consolidated finance receivables were carried at $277.8 million as of December 31, 2024, which is net of the allowance for credit losses of $11.2 million. The Company generated $40.8 million of finance receivable interest income, including fees, for the year ended December 31, 2024. As explained in Note 1 to the consolidated financial statements, the Company’s finance receivables are stated at amortized cost, net of unamortized origination fees, if any, and allowance for credit losses. Interest income on the finance receivables is recorded on an accrual basis based using the effective interest rate method to the extent that the Company expects to collect such amounts. The Company evaluates the collectibility of both interest and principal for each finance receivable to determine whether it is impaired. A finance receivable is considered to be impaired when, based on current information and events, the Company determines it is probable that it will be unable to collect amounts due according to existing contractual terms. When a finance receivable is considered to be impaired, the amount of loss is calculated by comparing the carrying value of the finance receivable to the value determined by discounting the expected future cash flows. If actual cash flows were to be substantially lower than estimated, there could be a significant adverse impact on the carrying value of the Company’s finance receivables, related finance receivable interest income, and the Company’s results of operations. 32 The principal considerations for our determination that performing procedures relating to valuation of the finance receivables and related finance receivable interest income is a critical audit matter is the overall impact on the consolidated financial statements, including the realization of the Company’s deferred tax assets, and the significant amount of judgement by management in developing the assumptions of the expected future cash flows which, in turn, led to significant auditor judgement, subjectivity, and effort in performing audit procedures and evaluating audit evidence relating to the expected future cash flows. Additionally, for certain finance receivables, there may be limited historical data with which to evaluate the expected future cash flows. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) evaluating management’s process and valuation method for developing the estimate of expected cash flows of its finance receivables and potential credit losses; (ii) testing the completeness and accuracy of the underlying data used in the estimate; and (iii) evaluating management’s assumptions used to estimate future cash flows. Evaluating management’s assumptions used to estimate future cash flows for reasonableness involved (i) considering historical cash flows from the Company’s finance receivable portfolio; (ii) comparing prior period estimates to actual results of the same period; (iii) publicly available information which supports or is to the contrary of the estimated future cash flows and; (iv) determining whether the estimated cash flows used were consistent with evidence obtained in other areas of the audit. /s/ BPM LLP We have served as the Company’s auditor since 2006. San Francisco, California March 20, 2025 33 SWK HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) Year Ended December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 5,927 $ 4,503 Restricted cash — 733 Interest, accounts receivable, and other receivables, net 5,788 4,729 Assets held for sale, net (Note 7) 6,398 — Other current assets 2,141 1,904 Total current assets 20,254 11,869 Finance receivables, net of allowance for credit losses of $ 11,249 and $ 13,901 as of December 31, 2024 and December 31, 2023, respectively 277,760 274,504 Collateral on foreign currency forward contract 2,750 2,750 Marketable investments 580 48 Deferred tax assets, net 23,484 28,290 Warrant assets 4,366 1,759 Intangible assets, net — 6,487 Property and equipment, net 48 5,438 Other non-current assets 2,993 3,109 Total assets $ 332,235 $ 334,254 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 2,810 $ 3,935 Liabilities held for sale (Note 7) 1,255 — Deferred income 1,500 9 Total current liabilities 5,565 3,944 Contingent consideration payable — 4,900 Unsecured senior notes, net 31,412 30,781 Revolving credit facility 6,233 12,350 Other non-current liabilities 335 1,964 Total liabilities 43,545 53,939 Commitments and contingencies (Note 9) Stockholders' equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding — — Common stock, $ 0.001 par value; 250,000,000 shares authorized; 12,213,599 and 12,497,770 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively 12 12 Additional paid-in capital 4,419,991 4,425,104 Accumulated deficit ( 4,131,313 ) ( 4,144,801 ) Total stockholders' equity 288,690 280,315 Total liabilities and stockholders' equity $ 332,235 $ 334,254 See accompanying notes to the consolidated financial statements. 34 S WK HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Year Ended December 31, 2024 2023 Revenues: Finance receivable interest income, including fees $ 40,787 $ 36,346 Pharmaceutical development 3,616 1,202 Other 584 212 Total revenues 44,987 37,760 Costs and expenses: Provision for credit losses 12,756 1,912 Loss on impairment of intangible assets 5,771 — Impairment of goodwill — 8,404 Interest expense 4,685 1,849 Pharmaceutical manufacturing, research and development expense 2,203 3,436 Change in fair value of acquisition-related contingent consideration ( 4,900 ) ( 6,300 ) Depreciation and amortization expense 1,399 2,577 General and administrative expense 11,487 11,232 Income from operations 11,586 14,650 Other income (expense), net Unrealized net gain (loss) on warrants 2,406 ( 55 ) Net gain (loss) on exercise and cancellation of warrants 445 ( 799 ) Net loss on marketable investments ( 266 ) — Realized gain on early payment of finance receivable 1,065 — Gain on revaluation of finance receivable 2,495 — Realized and unrealized foreign currency transaction gains 641 817 Income before income tax expense (benefit) 18,372 14,613 Income tax expense (benefit) 4,884 ( 1,274 ) Net income $ 13,488 $ 15,887 Net income per share Basic $ 1.09 $ 1.26 Diluted $ 1.08 $ 1.25 Weighted average shares outstanding Basic 12,369 12,653 Diluted 12,451 12,696 See accompanying notes to the consolidated financial statements. 35 SWK HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity Shares Amount Balances at December 31, 2022 12,843,157 $ 12 $ 4,430,922 $ ( 4,151,005 ) $ 279,929 Stock-based compensation — — 509 — 509 Issuance of restricted common stock 29,978 — — — — Effect of adoption of ASU 2016-13 — — — ( 9,683 ) ( 9,683 ) Stock options exercised, net 461 — — — — Repurchases of common stock in open market ( 375,826 ) — ( 6,327 ) — ( 6,327 ) Net income — — — 15,887 15,887 Balances at December 31, 2023 12,497,770 12 4,425,104 ( 4,144,801 ) 280,315 Stock-based compensation — — 944 — 944 Forfeiture of unvested restricted stock ( 6,446 ) — — — — Issuance of restricted common stock 73,364 — — — — Repurchases of common stock in open market ( 353,684 ) — ( 6,014 ) — ( 6,014 ) Net settlement for employee taxes on stock options — — ( 43 ) — ( 43 ) Stock options exercised, net 2,595 — — — — Net income — — — 13,488 13,488 Balances at December 31, 2024 12,213,599 12 4,419,991 ( 4,131,313 ) 288,690 See accompanying notes to the consolidated financial statements. 36 SWK HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ( In thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net income $ 13,488 $ 15,887 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 12,756 1,912 Impairment of goodwill — 8,404 Loss on impairment of intangible assets 5,771 — Right-of-use amortization and cease use costs 415 333 Amortization of debt issuance costs 1,054 493 Deferred income taxes, net 4,807 ( 1,286 ) Unrealized net (gain) loss on warrants ( 2,406 ) 55 Net (gain) loss on exercise and cancellation of warrants ( 445 ) 799 Net loss on marketable investments 266 — Change in fair value of acquisition-related contingent consideration ( 4,900 ) ( 6,300 ) Gain on revaluation of finance receivable ( 2,495 ) — Foreign currency transaction gain ( 1,414 ) ( 1,876 ) Loan discount amortization and fee accretion ( 3,918 ) ( 3,827 ) Interest paid-in-kind ( 2,807 ) ( 1,826 ) Stock-based compensation 944 509 Depreciation and amortization expense 1,399 2,577 Changes in operating assets and liabilities: Interest, accounts receivable and other receivables, net ( 1,059 ) ( 1,635 ) Derivative assets and liabilities, net 1,229 1,059 Other assets 199 ( 787 ) Accounts payable, accrued expenses, and other non-current liabilities ( 1,326 ) 371 Deferred income 1,491 26 Net cash provided by operating activities 23,049 14,888 Cash flows from investing activities: Sale of finance receivables — 13,942 Sale of marketable investments 574 — Investment in finance receivables ( 63,706 ) ( 74,125 ) Repayment of finance receivables 53,109 11,703 Corporate debt securities principal payments 27 28 Purchases of property and equipment ( 138 ) ( 496 ) Net cash used in investing activities ( 10,134 ) ( 48,948 ) Cash flows from financing activities: Net settlement for employee taxes on stock options ( 43 ) — Net (payments on) proceeds from credit facility ( 6,117 ) 9,905 Payments for financing costs ( 50 ) ( 3,407 ) Proceeds from senior unsecured notes — 32,969 Repurchases of common stock, including fees and expenses ( 6,014 ) ( 6,327 ) Net cash (used in) provided by financing activities ( 12,224 ) 33,140 Net increase (decrease) in cash, cash equivalents, and restricted cash 691 ( 920 ) Cash, cash equivalents, and restricted cash at beginning of period 5,236 6,156 Cash, cash equivalents, and restricted cash at end of period 5,927 5,236 Supplemental non-cash investing and financing activities: Derecognition of right-of-use assets and operating lease liabilities upon termination of lease 82 — Cash paid for interest $ 3,082 $ 1,351 Fair value of warrants received with finance receivables $ 1,241 $ 1,364 See accompanying notes to the consolidated financial statements. 37 SWK HOLDINGS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1. SWK Holdings Corporation and Summary of Significant Accounting Policies Nature of Operations SWK Holdings Corporation (the “Company,” “we,” or “us”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, we commenced a strategy of building a specialty finance and asset management business. In August 2019, we commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing business. Our operations comprise two reportable segments: “Finance Receivables” and “Pharmaceutical Development.” We evaluate and invest in a broad range of healthcare related companies and products with innovative intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical industries (collectively, “life sciences”). We allocate capital to each segment in order to generate income through the sales of life science products by third parties and related earned income sources. The Company is headquartered in Dallas, Texas, and as of December 31, 2024, the Company had 24 full-time employees. The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset. As of March 7, 2025, the Company and its partners have executed transactions with 58 different parties under its specialty finance strategy, funding an aggregate of $ 852.5 million in various financial products across the life science sector. The Company’s portfolio includes senior and subordinated debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and related intellectual property. During 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). Enteris is a clinical development and manufacturing organization providing development services to pharmaceutical partners. We seek to generate income by providing customers pharmaceutical development, formulation and manufacturing services. With an effective date of April 21, 2023, we entered into a collaboration agreement with a strategic partner under which we would be the exclusive provider of certain contract development and manufacturing organization ("CDMO") services to its customers. Fee revenue generated as a result of this agreement is presented as pharmaceutical development revenue on the consolidated statement of income and is accounted for in accordance with our revenue recognition policy as described under Revenue Recognition below. With an effective date of January 1, 2024, we entered into an Option and Asset Purchase Agreement with a strategic partner on March 14, 2024, which granted the strategic partner 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. The strategic partner must exercise the option by or before January 1, 2026. As of December 31, 2024, Enteris is classified as held for sale as the option is expected to be exercised within the next 12-months - see Note 7 for further details. Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. The Company consolidates a variable interest entity (“VIE”) when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE, after elimination of intercompany accounts and transactions. The Company owns interests in various partnerships and limited liability companies, or LLCs. The Company consolidates its investments in these partnerships or LLCs, where the Company, as the general partner or managing member, exercises effective control, even though the Company’s ownership may be less than 50%, the related governing agreements provide the Company with broad powers, and the other parties do not participate in the management of the entities and do not effectively have the ability to remove the Company. The Company has reviewed each of the underlying agreements to determine if it has effective control. If circumstances change and it is determined this control does not exist, any such investment would be recorded using the equity method of accounting. Although this would change individual line items within the Company’s consolidated financial statements, it would have no effect on its operations and/or total stockholders’ equity attributable to the Company. Reclassification of Prior Period Amounts Certain prior period financial information has been reclassified to conform to current period presentation. 38 Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition; stock-based compensation; valuation of accounts receivable; impairment of finance receivables; long-lived assets; property and equipment; intangible assets; goodwill; valuation of warrants and other investments; contingent consideration; income taxes; and contingencies and litigation, among others. Some of these judgments can be subjective and complex, and consequently, actual results may differ from these estimates. The Company’s estimates often are based on complex judgments, probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable. The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause changes to those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, and economic downturns, can increase the uncertainty already inherent in the Company’s estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. Segment Information The Company earns revenues from its two U.S.-based business segments: its specialty finance and asset management business offering customized financing solutions to a broad range of life-sciences companies, and its business offering clinical development and manufacturing services to pharmaceutical partners. Intangible Assets Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Goodwill and indefinite-lived intangible assets are not amortized, but instead, are subject to annual impairment testing. We review goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter and continually assess whether a triggering event has occurred to determine whether the carrying value exceeds the implied fair value. For the year ended December 31, 2024, the Company identified indicators of impairment for identifiable finite-lived intangible assets due to the lowering of financial expectations for the License Agreement with Cara, and concluded an impairment was required. See Note 3 for further information. Property and Equipment, Net Property and equipment are recorded at cost less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. In addition, we capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added to the cost of the assets and depreciated over the estimated useful lives of the assets. Leased property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability and included in current liabilities. Depreciation is recorded over the estimated useful lives of the assets involved using the straight-line method. Leasehold improvements and capitalized lease assets are amortized to depreciation expense over the estimated useful life of the asset or the respective lease term used in determining lease classification, whichever is shorter. The range of estimated useful lives is as follows: Asset Estimated Useful Life Leasehold improvements Lesser of lease term or useful life Furniture, fixtures and equipment 3 to 15 years Deferred Income Deferred income includes amounts that have been billed per the contractual terms but have not been recognized as income. The Company classifies as current the portion of deferred income that is expected to be recognized within one year from the balance sheet date. Research and Development Research and development expenses include the costs associated with internal research and development and research and development conducted for the Company by third parties. These costs primarily consist of salaries, pre-clinical and clinical trials, 39 outside consultants, and supplies. All research and development costs discussed above are expensed as incurred. Third-party expenses reimbursed under research and development contracts, which are not refundable, are recorded as a reduction to pharmaceutical manufacturing research and development expense in the consolidated statements of income. Finance Receivables The Company extends credit to customers through a variety of financing arrangements, including revenue interest term loans. The amounts outstanding on loans are referred to as finance receivables and are included in finance receivables in the consolidated balance sheets. It is the Company’s expectation that the loans originated will be held for the foreseeable future or until maturity. In certain situations, for example to manage concentrations and/or credit risk, some or all of certain exposures may be sold. Loans for which the Company has the intent and ability to hold for the foreseeable future or until maturity are classified as held for investment (“HFI”). If the Company no longer has the intent or ability to hold loans for the foreseeable future, then the loans are transferred to held for sale (“HFS”). Loans entered into with the intent to resell are classified as HFS. As of December 31, 2024 and 2023, the Company had no loans classified as HFS. If it is determined that a loan should be transferred from HFI to HFS, then the balance is transferred at the lower of amortized cost or fair value. At the time of transfer, a write-down of the loan is recorded as an impairment when the carrying amount exceeds fair value and the difference relates to credit quality. Otherwise the write-down is recorded as a reduction in finance receivable interest income, and any credit loss reserve is reversed. Once classified as HFS, the amount by which the carrying value exceeds fair value is recorded as a valuation allowance and is reflected as a reduction to finance receivable interest income. If it is determined that a loan should be transferred from HFS to HFI, the loan is transferred at the lower of cost or fair value on the transfer date, which coincides with the date of change in management’s intent. The difference between the carrying value of the loan and the fair value, if lower, is reflected as a loan discount at the transfer date, which reduces its carrying value. Subsequent to the transfer, the discount is accreted into earnings as an increase to finance revenue interest income over the life of the loan using the effective interest method. The Company accounts for its finance receivables at amortized cost, net of unamortized origination fees, if any. Related fees and costs are recorded net of any amounts reimbursed, and interest is accreted or accrued to interest revenue using the effective interest method. When and if supplemental payments are received from these long-term receivables, an adjustment to the estimated effective interest rate is affected prospectively. The Company evaluates the collectibility of both interest and principal for each loan to determine whether it is impaired. A loan is considered to be impaired when, based on current information and events, the Company determines it is probable that it will be unable to collect amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the carrying value of the financial asset to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the estimated fair value of the underlying collateral, less costs to sell, if the loan is collateralized and the Company expects repayment to be provided solely by the collateral. Impairment assessments require significant judgments and are based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral. Held for Sale The Company classifies long-lived assets or disposal groups as held for sale in the period when all of the following conditions have been met: • we have approved and committed to a plan to sell the assets or disposal group; • the asset or disposal group is available for immediate sale in its present condition; • an active program to locate a buyer and other actions required to complete the sale have been initiated; • the sale of the asset or disposal group is probable and expected to be completed within one year; • the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and • it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell and recognize any loss in the period in which the held for sale criteria are met. Gains, if any, are not recognized until the date of sale. We cease depreciation and amortization of a long-lived asset, or assets within a disposal group, upon their designation as held for sale and subsequently assess fair value less any costs to sell at each reporting period until the asset or disposal group is no longer classified as held for sale. 40 Provision for Credit Losses The allowance for credit losses is intended to provide for credit losses inherent in the finance receivables portfolio and is periodically reviewed for adequacy considering credit quality indicators, including expected and historical losses and levels of and trends in past due loans, non-performing assets and impaired loans, collateral values and economic conditions. The allowance for credit losses is determined based on specific allowances for loans that are impaired, based upon the value of underlying collateral or projected cash flows. Changes to the allowance for credit losses are recorded in the provision for loan credit losses in the consolidated statements of income. The Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended, on January 1, 2023 using the modified retrospective approach method. See Note 4 for further information. Marketable Investments The Company’s marketable investment portfolio includes debt and equity securities as of December 31, 2024. The debt security is classified as an available-for-sale security, which is reported at fair value with unrealized gains or losses recorded in other income, net of applicable income taxes. Equity securities that have a readily determinable fair value are stated at fair value. The Company records changes in fair value of its equity securities in other income (expense), net in its consolidated statement of income. Foreign Currency Transactions The Company uses the U.S. dollar as its functional currency. Monetary assets and liabilities and transactions denominated in currencies other than an entity’s functional currency are remeasured into its functional currency using current exchange rates, whereas nonmonetary assets and liabilities are remeasured using historical exchange rates. The Company recognizes gains and losses from such remeasurements within other income (expense), net in the consolidated statements of income in the period of occurrence. Other Receivables As of December 31, 2024 and 2023, the Company had collateral receivable of $ 2.8 million with the counterparties on its foreign currency exchange contract and is recorded as collateral on foreign currency forward contract in the consolidated balance sheets. Derivatives All derivatives held by the Company are recognized in the consolidated balance sheets at fair value. Changes in fair value for derivatives that do not meet the criteria for hedge accounting, or for which the Company has not elected hedge accounting are recorded in the consolidated statements of income. If a derivative is recorded using hedge accounting, then depending on its nature, changes in its fair value will be either offset against change in the fair value of hedged assets or liabilities through the consolidated statements of income or recorded in other comprehensive income. The Company had no derivatives designated as hedges as of December 31, 2024 and 2023. The Company holds warrants issued to the Company in conjunction with term loan investments discussed in Note 4. These warrants meet the definition of a derivative and are included in warrant assets in the consolidated balance sheets. The Company also uses a foreign currency forward contract to manage the impact of fluctuations in foreign currency denominated cash flows expected to be received from one of its royalty finance receivables denominated in a foreign currency. The foreign currency forward contract discussed in Note 11 is not designated as a hedging instrument, and changes in fair value are recognized in earnings. Revenue Recognition Finance Receivables Segment The Company’s Finance Receivables segment records interest income on an accrual basis based on the effective interest rate method to the extent that it expects to collect such amounts. The Company recognizes investment management fees when clients invest in our recommended transactions as earned over the period the services are rendered. Incentive fees, if any, are recognized when earned at the end of the relevant performance period, pursuant to the underlying contract. The Company did not recognize any management or incentive fees in 2024 or 2023. Other service revenues are recognized when contractual obligations are fulfilled or as services are provided. Pharmaceutical Development Segment The Company’s Pharmaceutical Development segment enters into collaboration and licensing agreements with strategic partners, under which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products. 41 In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs 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; 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; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation 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. The Company 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. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated balance sheets. Amounts 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. The Company evaluates collaboration agreements with respect to the Financial Accounting Standards Board ("FASB") ASC Topic 808, Collaborative Arrangements , considering the nature and contractual terms of the arrangement and the nature of its business operations to determine the classification of the transactions. When the Company is an active participant in the activity and exposed to significant risks and rewards dependent on the commercial success of the collaboration, it will record its transactions on a gross basis in the consolidated financial statements and describe the rights and obligations under the collaborative arrangement in the notes to the consolidated financial statements. Exclusive Licenses If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner; the retention of any key rights by the Company; and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company exercises judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods. Customer Options If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. Research and Development Services The promises under the Company’s collaboration agreements may include research and development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts. Reimbursements from and payments to the partner that are the result of a collaborative relationship with the partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction to research and development expense. 42 Milestone Payments At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Royalties For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity date of three months or less at the date of purchase to be cash equivalents. There were no such investments at December 31, 2024 or 2023, as all of our cash was held in checking, savings and brokerage accounts. As of December 31, 2024, cash was deposited in financial institutions and consisted of immediately available fund balances. The Company maintains its cash deposits with well-known and stable financial institutions but balances may exceed stated federally insured limits. Restricted Cash Restricted cash as of December 31, 2023 is composed of a holdback amount associated with one of the Company's finance receivables. Interest and Accounts Receivable The Company records interest receivable on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement, to the extent that such amounts are expected to be collected. When management does not expect that principal, interest, and other obligations due will be collected in full, the Company will generally place the loan on nonaccrual status and cease recognizing interest income on that loan until all principal and interest due has been paid or the Company believes the partner company has demonstrated the ability to repay the Company’s current and future contractual obligations. Any uncollected interest related to prior periods is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. The Company did not recognize any provision for interest receivable credit losses in 2024 and 2023. Accounts receivable from management fees and pharmaceutical development revenue is recorded at the aggregate unpaid amount less any allowance for credit losses. The Company determines an account receivable’s delinquency status based on its contractual terms. Interest is not charged on outstanding balances. Accounts are written-off only when all methods of recovery have been exhausted. As of December 31, 2024 and 2023, the provision for credit losses on interest and accounts receivable was zero. Certain Risks and Concentrations Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, interest and accounts receivable, finance receivables and marketable investments. The Company invests its excess cash with major U.S. banks and financial institutions. The Company has not experienced any losses on its cash and cash equivalents. Finance Receivables Segment For the year ended December 31, 2024, the Company had one customer that accounted for 11.6 % of revenues. For the year ended December 31, 2023, the Company had two customers that accounted for 24.1 % of revenues. The Company performs ongoing credit evaluations of its partner companies and generally requires collateral. For the year ended December 31, 2024, two of our business partners accounted for 36.6 % of our interest and accounts receivable. For the year ended December 31, 2023, three of our business partners accounted for 35.0 % of our interest and accounts receivable. 43 Pharmaceutical Development Segment For the year ended December 31, 2024, the Company had one customer that accounted for approximately 96.0 % of pharmaceutical development revenues. For the year ended December 31, 2023, the Company had two customers that accounted for approximately 99.8 % of pharmaceutical development revenues. The Company does not expect its current or future credit risk exposures to have a significant impact on its operations. However, there can be no assurance that its business will not experience any adverse impact from credit risk in the future. Stock-based Compensation All employee and director stock-based compensation is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the requisite service period. Stock-based compensation expense is reduced for estimated future forfeitures. These estimates are revised in future periods if actual forfeitures differ from the estimates. Changes in forfeiture estimates impact compensation expense in the period in which the change in estimate occurs. For restricted stock, the Company recognizes compensation expense in accordance with the fair value of the Company’s stock as determined on the grant date, amortized over the applicable service period. When vesting of awards is based wholly or in part upon the future performance of the stock price, such terms result in adjustments to the grant date fair value of the award and the derivation of a service period. If service is provided over the derived service period, the adjusted fair value of the awards will be recognized as compensation expense, regardless of whether or not the awards vest. Fair Value of Financial Instruments The recorded values of cash and restricted cash, accounts and finance receivables, accounts payable, and accrued expenses approximate the fair values due to the short-term nature of the instruments. The recorded values of our foreign currency forwards are fair value based on observable inputs other than quoted prices. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is recorded to reduce deferred tax assets to an amount where realization is more likely than not. If the Company ultimately determines that the payment of such a liability is not necessary, then the Company reverses the liability and recognizes a tax benefit during the period in which the determination is made that the liability is no longer necessary. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax benefit in the statements of income. Comprehensive Income The consolidated statements of comprehensive income have been omitted, as net income equals comprehensive income for the years ended December 31, 2024 and 2023. Recent Accounting Pronouncements In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, “ Reference Rate Reform (Topic 848) ,” which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include: (i) contract modifications, (ii) hedging relationships, and (iii) sales or transfers of debt securities classified as held-to-maturity. ASU 2020-04 was effective upon issuance, and the provisions generally can be applied prospectively as of January 1, 2020 through December 31, 2024. The Company’s finance agreements that utilized LIBOR discontinued the use of LIBOR and adopted the Secured Overnight Financing rate (“SOFR”) or Prime Rate, which did not materially impact our consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, " Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ," which requires public entities to retrospectively disclose information about their reportable segments’ significant expenses on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of the new standard affects financial statement disclosure only, and its adoption did not affect our results of operations or financial condition. In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740): Improvements to Income Tax Disclosures ." The standard is intended to provide greater transparency in various income tax components that affect the rate reconciliation based on the applicable taxing jurisdictions, as well as the qualitative and quantitative aspects of those components. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures. 44 Note 2. Net Income Per Share Basic net income per share is computed using the weighted-average number of outstanding shares of common stock. Diluted net income per share is computed using the weighted-average number of outstanding shares of common stock, and when dilutive, shares of common stock issuable upon exercise of options and warrants deemed outstanding using the treasury stock method. The following table shows the computation of basic and diluted earnings per share for the following (in thousands, except per share amounts): Year Ended December 31, 2024 2023 Numerator: Net income $ 13,488 $ 15,887 Denominator: Weighted-average shares outstanding 12,369 12,653 Effect of dilutive securities 82 43 Weighted-average diluted shares 12,451 12,696 Basic net income per share $ 1.09 $ 1.26 Diluted net income per share $ 1.08 $ 1.25 As of December 31, 2024 and 2023, outstanding options to purchase shares of common stock and outstanding shares of restricted stock in an aggregate of approximately 158,000 and 122,000 , respectively, have been excluded from the calculation of diluted net income per share, as such securities were anti-dilutive. 45 Note 3. Goodwill and Intangible Assets Goodwill The net book value of goodwill was solely related to the Enteris acquisition in 2019. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. During the year ended December 31, 2023, the Company decreased its financial expectations for the License Agreement with Cara and 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 recorded an impairment charge of $ 8.4 million . An income valuation approach was used to estimate the fair value of the Enteris reporting unit which was estimated through a probability-adjusted discounted cash flow analysis. As of December 31, 2024, certain assets of the Enteris reporting unit are classified as held for sale, including intangible assets net, of $ 0.2 million - see Note 7 for further details. Intangible Assets As of December 31, 2023 , the gross book value, accumulated amortization, net book value and estimated useful life of acquired intangible assets were as follows (in thousands, except estimated useful life data): As of December 31, 2023 Gross Book Value Accumulated Amortization Net Book Value Estimated Useful Life License Agreement (1) $ 29,400 $ 23,167 $ 6,233 10 Trade names and trademarks 210 92 118 10 Customer relationships 240 104 136 10 Total $ 29,850 $ 23,363 $ 6,487 (1) Prior to the Company's acquisition of Enteris, Enteris entered into the License Agreement with Cara, for oral formulation rights to Enteris’ technology to develop and commercialize Oral KORSUVA TM in any indication worldwide, excluding South Korea and Japan. Cara is obligated to pay Enteris certain development, regulatory and tiered commercial milestone payments, as well as low single-digit royalties based on net sales in the licensed territory. During 2024, the Company concluded that the milestones and royalties pursuant to the License Agreement would not be realized as a result of non-viability of product covered by the License Agreement. The Company has recognized a full impairment on the license of its remaining net book value of $ 5.8 million which is included in the "Loss on impairment of intangible assets" section of our consolidated statements of income. Amortization expense related to intangible assets was $ 0.5 million and $ 1.7 million for the year ended December 31, 2024 and 2023 , respectively. 46 Note 4. Finance Receivables Finance receivables are reported at their determined principal balances net of any unearned income, cumulative charge-offs and unamortized deferred fees and costs. Unearned income and deferred fees and costs are amortized to interest income based on all cash flows expected using the effective interest method. The carrying values of finance receivables are as follows (in thousands): December 31, 2024 2023 Term loans $ 224,073 $ 221,145 Royalty purchases 64,936 67,260 Total before allowance for credit losses 289,009 288,405 Allowance for credit losses ( 11,249 ) ( 13,901 ) Total carrying value $ 277,760 $ 274,504 Allowance for Credit Losses The allowance for credit losses ("ACL") is management's estimate of the amount of expected credit losses over the life of the loan portfolio, or the amount of amortized cost basis not expected to be collected, at the balance sheet date. This estimate encompasses information about historical events, current conditions and reasonable and supportable economic forecasts. Determining the amount of the ACL is complex and requires extensive judgment by management about matters that are inherently uncertain. Given the current level of economic uncertainty, the complexity of the ACL estimate and level of management judgment required, we believe it is possible that the ACL estimate could change, potentially materially, in future periods. Changes in the ACL may result from changes in current economic conditions, our economic forecast, and circumstances not currently known to us that may impact the financial condition and operations of our borrowers, among other factors. Expected credit losses are estimated on a collective basis for groups of loans that share similar risk characteristics. For finance receivables that do not share similar risk characteristics with other finance receivables, expected credit losses are estimated on an individual basis. Expected credit losses are estimated over the contractual terms of the finance receivables, adjusted for expected prepayments and unfunded commitments, generally excluding extensions and modifications. The loan portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. The Company adopted ASU 2016-13, as amended, on January 1, 2023 using the modified retrospective approach method. The implementation of ASU 2016-13 also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company. The reserve for unfunded commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $ 0.4 million for the adoption of ASU 2016-13. As of December 31, 2024 and December 31, 2023, the Company has a $ 0.1 million and $ 0.2 million, respectively, liability for credit losses on off-balance sheet exposures related to unfunded commitments, with this liability included in accounts payable and accrued liabilities on the consolidated balance sheets. Please refer to Note 9 for further information on the Company's unfunded commitments. Allowance for Credit Losses - methodology update During the year ended December 31, 2024 , the Company revised its methodology for calculating the allowance for credit losses to be more directly tied to the individual risk ratings, as determined by management, of finance receivables. This resulted in a re-allocation of the existing allowance and did not have a material impact on the total allowance for credit losses amount. Previously, the Company's quarterly assessment of the allowance included two portfolio pools: Term Loans and Royalties. After the change in methodology effective for the quarter ended June 30, 2024, these pools are further broken down into individual risk ratings applied to each investment to allow for a more precise method for calculating the allowance for credit losses. 47 The following table details the changes in the allowance for credit losses by portfolio segment for the respective periods (in thousands): December 31, 2024 December 31, 2023 Term Loans Royalties Total Term Loans Royalties Total Allowance at beginning of period $ 9,731 $ 4,170 $ 13,901 $ — $ 11,846 $ 11,846 Effect of adoption of ASU 2016-13 — — — 8,900 2,886 11,786 Provision for (benefit from) credit losses 8,907 ( 79 ) 8,828 831 1,284 2,115 Write offs, net of recoveries (1) ( 11,480 ) — ( 11,480 ) — ( 11,846 ) ( 11,846 ) Allowance at end of period $ 7,158 $ 4,091 $ 11,249 $ 9,731 $ 4,170 $ 13,901 (1) Reversal of finance receivable-specific ACL recognized in prior periods. No impact to consolidated statement of income for the year ended December 31, 2023. Non-Accrual Finance Receivables The Company originates finance receivables to companies primarily in the life sciences sector. This concentration of credit exposes the Company to a higher degree of risk associated with this sector. On a quarterly basis, the Company evaluates the carrying value of its finance receivables. Recognition of income is suspended, and the finance receivable is placed on non-accrual status when management determines that collection of future income is not probable. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The Company would generally place term loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain and they are 90 days past due for interest or principal, unless the term loan is both well-secured and in the process of collection. When placed on nonaccrual, the Company would reverse any accrued unpaid interest receivable against interest income and amortization of any net deferred fees is suspended. Generally, the Company would return a term loan to accrual status when all delinquent interest and principal become current under the terms of the credit agreement. The following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands): December 31, 2024 December 31, 2023 Nonaccrual Performing Total Nonaccrual Performing Total Term loans $ 1,000 $ 223,073 $ 224,073 $ 9,128 $ 212,017 $ 221,145 Royalty purchases 13,830 51,106 64,936 16,854 50,406 67,260 Total before allowance for credit losses $ 14,830 $ 274,179 $ 289,009 $ 25,982 $ 262,423 $ 288,405 Allowance for credit losses ( 2,075 ) ( 9,174 ) ( 11,249 ) ( 1,447 ) ( 12,454 ) ( 13,901 ) Total carrying value $ 12,755 $ 265,005 $ 277,760 $ 24,535 $ 249,969 $ 274,504 As of December 31, 2024, the Company had four finance receivables in nonaccrual status: (1) the Flowonix Medical, Inc. (“Flowonix”) royalty, with a carrying value of $ 8.4 million; (2) the Best ABT, Inc. (“Best”) royalty, with a carrying value of $ 2.3 million; (3) the Ideal Implant, Inc. (“Ideal”) royalty, with a carrying value of $ 3.1 million; and (4) the term loan to BIOLASE, Inc ("BIOLASE"), with a carrying value of $ 1.0 million. The Company collected $ 15.9 million and $ 2.4 million on these nonaccrual finance receivables for the years ended December 31, 2024 and 2023 , respectively . Term Loan Settlements/Payoffs On November 14, 2024, a third party purchased certain Exeevo assets in accordance with an Asset Purchase Agreement ("Exeevo APA"), whereby the Company received a payment of $ 3.4 million cash at closing, a net $ 0.7 million payment in January 2025, and $ 0.5 million in February 2025. Additionally, the Company is eligible to receive a three year contingent earn out consisting of 30 % of the annual increase in SAAS gross margin. The Company assigned no value to the contingent earn out given the uncertainty that the contingencies will be met. BIOLASE filed for Chapter 11 bankruptcy protection on October 1, 2024. The Company agreed to make additional fundings to support the Chapter 11 process through Debtor-in-Possession (“DIP”) Financing and on October 9, 2024, the Company advanced an additional $ 1.4 million DIP Financing to BIOLASE. During November 2024 certain assets of Biolase were sold to a third party. On November 27, 2024 the Company received a $ 13.0 million payment from the bankruptcy estate. The Company received an additional payment of $ 1.0 million in February 2025.. 48 On December 16, 2024, certain assets of Trio Healthcare were sold to a third party and the Company received a $ 1.9 million cash payment. Loan Modifications Made to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, the Company adopted the provisions of ASU 2022-02, which eliminated the accounting for TDRs while expanding loan modification and vintage disclosure requirements. The update specifically required additional disclosures on loan modifications to borrowers experiencing financial difficulties that involved an interest rate reduction, other-than-insignificant payment delay, a term extension, principal forgiveness or a combination thereof. The Company evaluates the carrying value of each finance receivable for impairment. A term loan is considered to be impaired when, based on current information and events, it is determined that the Company will not be able to collect the amounts due according to the loan contract, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. In certain circumstances, the Company may place a finance receivable on nonaccrual status but conclude it is not impaired. The Company may retain independent third-party valuations on such nonaccrual positions to support impairment decisions. On an ongoing basis, the Company monitors the performance of modified loans to their restructured terms. Revaluation of Finance Receivable During the year ended December 31, 2024 , the C ompany revalued its royalty for Iluvien as a result of entering into an amendment. Pursuant to the amendment, the forecast of cash flows to be received over the life of the financial royalty was revised resulting in a revaluation gain of $ 2.5 million and corresponding mark-up to the carrying value which is included in the "Gain on revaluation of finance receivable" caption on our consolidated statements of income for the year ended December 31, 2024. Credit Quality of Finance Receivables The Company evaluates all finance receivables on a quarterly basis and assigns a risk rating based upon management’s assessment of the borrower’s ability and likelihood of repayment. The assessment is subjective and based on multiple factors, including but not limited to, financial strength of borrowers and operating results of the underlying business. The credit risk analysis and rating assignment is performed quarterly in conjunction with the Company's assessment of its allowance for credit losses. The Company uses the following definitions for its risk ratings for Term Loans: 1: Borrower performing well below Company expectations, and the borrower's ability to raise sufficient capital to operate its business or repay debt is highly in question. Finance receivables rated a 1 are on non-accrual and are at an elevated risk for principal impairment. 2: Borrower performing below plan, and the loan-to-value is generally worse than at the time of underwriting. Borrower has limited access to additional capital to operate its business. Finance receivables rated a 2 are generally on non-accrual, and while no loss of impairment is anticipated, there is potential for future principal impairment. 3: Borrower performing in-line-to-modestly below Company expectations, and loan-to-value is similar to slightly worse than at the time of underwriting. Borrower has demonstrated access to capital markets. 4: Borrower performing in-line-to-modestly above Company expectations and loan-to-value similar or modestly better than underwriting case. Borrower has demonstrated access to capital markets. 5: Borrower performing in excess of Company expectations, and loan-to-value is better than at time of origination. The Company uses an internal credit rating system which rates each Royalty on a color scale of Green to Red, with Green typically indicative of a Royalty that is exceeding base underwritten case, Yellow indicates a Royalty performing in-line with underwritten plan, and Red reflective of underperformance relative to plan. Royalties rated as Red are generally classified as non-accrual. 49 The following table summarizes the carrying value of Finance Receivables by origination year, grouped by risk rating as of December 31, 2024 and December 31, 2023 (in thousands): December 31, 2024 2024 2023 2022 2021 2020 2019 Prior Total Term Loans 5 $ — $ — $ — $ 16,378 $ — $ 28,926 $ — $ 45,304 4 7,929 36,406 55,353 — — — — 99,688 3 — 24,920 — 11,930 — 26,482 — 63,332 2 — — — 14,749 — — — 14,749 1 — — — — — — 1,000 1,000 Subtotal - Term Loans $ 7,929 $ 61,326 $ 55,353 $ 43,057 $ — $ 55,408 $ 1,000 $ 224,073 Royalties Green $ 8,005 $ 11,685 $ 11,231 $ — $ 15,865 $ — $ 1,267 $ 48,053 Yellow — — — — 3,053 — — 3,053 Red — — — 3,050 8,433 — 2,347 13,830 Subtotal - Royalties $ 8,005 $ 11,685 $ 11,231 $ 3,050 $ 27,351 $ — $ 3,614 $ 64,936 Total Finance Receivables, gross $ 15,934 $ 73,011 $ 66,584 $ 46,107 $ 27,351 $ 55,408 $ 4,614 $ 289,009 December 31, 2023 2023 2022 2021 2020 2019 Prior Total Term Loans 5 $ — $ — $ 13,734 $ — $ 5,696 $ — $ 19,430 4 25,799 32,211 — — — 10,485 68,495 3 24,341 24,285 10,227 — 31,807 — 90,660 2 — 6,924 12,493 — — 14,015 33,432 1 — — 9,128 — — — 9,128 Subtotal - Term Loans $ 50,140 $ 63,420 $ 45,582 $ — $ 37,503 $ 24,500 $ 221,145 Royalties Green $ 27,785 $ — $ — $ 14,650 $ — $ 1,340 $ 43,775 Yellow — — — 3,212 — 3,419 6,631 Red — — 3,834 10,433 — 2,587 16,854 Subtotal - Royalties $ 27,785 $ — $ 3,834 $ 28,295 $ — $ 7,346 $ 67,260 Total Finance Receivables, gross $ 77,925 $ 63,420 $ 49,416 $ 28,295 $ 37,503 $ 31,846 $ 288,405 50 Note 5. Property and Equipment, Net As of December 31, 2024, property and equipment, net, excluded $ 4.6 million that are included in assets held for sale on the consolidated balance sheet. See Note 7 for further details. Property and equipment, net consisted of the following (in thousands): December 31, 2024 December 31, 2023 Production equipment and other $ — $ 4,079 Furniture and fixtures 139 198 Leasehold improvements 13 3,645 Capitalized software 16 192 Total 168 8,114 Less accumulated depreciation and amortization ( 120 ) ( 2,676 ) Property and equipment, net $ 48 $ 5,438 Depreciation and amortization expense on property and equipment was $ 0.9 million and $ 0.8 million for the year ended December 31, 2024 and 2023, respectively. 51 Note 6. Marketable Investments Investments in corporate debt and equity securities as of December 31, 2024 and 2023 consist of the following (in thousands): Year Ended December 31, 2024 2023 Corporate debt securities $ 21 $ 48 Equity securities 559 — Total marketable investments $ 580 $ 48 The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities as of December 31, 2024 and 2023, are as follows (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2024 $ 21 $ — $ — $ 21 December 31, 2023 $ 48 $ — $ — $ 48 Equity Securities During the year ended December 31, 2024 the Company exercised its right to purchase AOTI, Inc ("AOTI") restricted stock. Upon exercise, the Company received 402,634 shares of AOTI restrictedstock with a fair value of $ 0.7 million, or $ 1.68 per share. The restricted stock can be converted into publicly traded common shares one year after the exercise date. The following table presents gains and losses on equity securities as prescribed by ASC 321, Investments - Equity Securities during the year ended December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Net (gain) loss on equity securities during the period $ ( 180 ) $ 799 Add: Net gain (loss) on warrants exercised or cancelled during the period 445 $ ( 799 ) Add: Net loss recognized on equity securities sold during the period ( 180 ) — Unrealized loss on equity securities held at the end of the period $ 85 $ — 52 Note 7. Assets and Liabilities Held for Sale With an effective date of January 1, 2024, the Company entered into an Option and Asset Purchase Agreement with a strategic partner on March 14, 2024, which granted the strategic partner an exclusive option to acquire certain of Enteris’ assets related to its business of providing CDMO services to third parties, subject to certain exclusions. The strategic partner must exercise the Option by or before January 1, 2026. As we expect the strategic partner to exercise the Option within the next 12 months from the year ended December 31, 2024, certain assets and liabilities of the Enteris business have been classified as held for sale. The assets and liabilities held for sale represent the major operating assets and liabilities of the Enteris business (i.e. the majority of the Pharmaceutical Development segment) and as such, when the Option is exercised, this segment of the business will no longer exist and only the specialty finance business will remain. The decision to enter into the Option and Asset Purchase Agreement was made to align with the overall strategy to focus on the specialty finance business. The following table summarizes the assets and liabilities held for sale: December 31, 2024 Assets: Inventory $ 354 Property & equipment, net 4,635 Intangible assets, net 209 Other non-current assets 1,200 Total assets held for sale, net $ 6,398 Liabilities: Accounts payable & accrued liabilities $ 268 Other non-current liabilities 987 Total liabilities held for sale $ 1,255 During the year ended December 31, 2024, there was not a strategic shift for the Company, and accordingly, the Pharmaceutical Development segment does not meet the criteria to be classified as a discontinued operation. As a result, we will continue to report our operational results for the Pharmaceutical Development segment until the sale. The following table shows the net loss before taxes for Enteris (in thousands): December 31, 2024 2023 Net loss before taxes $ ( 3,718 ) $ ( 9,763 ) 53 Note 8. Debt Revolving Credit Facility On June 28, 2023, the Company entered into a new Credit Agreement (the “Credit Agreement”) by and among SWK Funding LLC, the Company’s wholly-owned subsidiary (together with the Company, the “Borrower”), the lenders party thereto (“Lenders”), and First Horizon Bank as a Lender and Agent (the “Agent”). The Credit Agreement provides for a revolving credit facility with an initial maximum principal amount of $ 45.0 million. The Credit Agreement provides that the Company may request one or more incremental increases in an aggregate amount not to exceed $ 80.0 million, subject to the consent of the Agent and each Lender, at any time prior to the termination of the revolving credit period on June 28, 2026 (the “Commitment Termination Date”). The revolving credit period will be followed by a one-year amortization period, with the final maturity date of the Credit Agreement occurring on June 28, 2027. The outstanding principal balance of the Credit Agreement will bear interest at a rate per annum equal to the sum of (i) Term SOFR (as defined in the Credit Agreement) plus (ii) 3.75 % at all times prior to the Commitment Termination Date. The outstanding principal balance of the Revolving Credit Facility will bear interest at a rate per annum equal to the sum of (i) Term SOFR (as defined in the Credit Agreement) plus (ii) 4.25 % at all times on and after the Commitment Termination Date. Under the terms of the Credit Agreement, all accrued and unpaid interest shall be due and payable, in arrears, on the first business day of each calendar month. The Credit Agreement contains customary affirmative and negative covenants, in addition to financial covenants specifying that, as of the end of each calendar month, (i) the consolidated leverage ratio of Borrower will not exceed 1.00 to 1.00, (ii) the consolidated interest coverage ratio of Borrower will not be less than 4.00 to 1.00, (iii) the cash collection rate in relation to Borrower’s portfolio of loan assets will not be less than 4.5 %, for such calendar month, (iv) the net charge-off percentage in relation to Borrower’s portfolio of loan assets will not exceed 3 % for such calendar month, and (v) the weighted average risk rating in relation to Borrower portfolio of loan assets will not be less than 3.00 . In addition, the Credit Agreement provides that at no time shall the Company permit its consolidated tangible net worth to be less than $ 145.0 million, or its Liquidity (as defined in the Credit Agreement) to be less than $ 5.0 million. The Credit Agreement also contains events of default customary for such financings, the occurrence of which would permit the Agent and Lenders to accelerate the aggregate principal amount due thereunder. As of December 31, 2024, the Company was in compliance with all covenants. The Credit Agreement refinances the Company’s Loan and Security Agreement dated as of June 29, 2018 (the “Prior Credit Agreement”), as amended, between the Company and Cadence Bank, N.A. (“Cadence Bank”), as the lender and administrative agent, which was due to expire on September 30, 2025. The Prior Credit Agreement was terminated by the Company, effective as of June 28, 2023. On October 10, 2023, the Company entered into an amendment to the 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. On August 29, 2024, the Company entered into an amendment to the Credit Agreement pursuant to which the consolidated interest coverage ratio of Borrower will not be less than 2.00 to 1:00, the net charge-off percentage in relation to Borrower's portfolio of loan assets will not be less than 8 % for such calendar month, and cumulative share repurchases will not exceed $ 7.0 million in value in any 12-month period. As of December 31, 2024 and 2023, there were $ 6.2 million and $ 12.4 million, respectively, outstanding under the new Credit Agreement. During the years ended December 31, 2024 and 2023, the Company recognized $ 1.1 million and $ 1.0 million, respectively, of interest expense in connection with the Credit Agreement and Prior Credit Agreement. Senior Notes Due 2027 On October 3, 2023, the Company issued a $ 30.0 million aggregate principal amount of 9.00 % Senior Notes due 2027 ("2027 Senior Notes" or "Notes”) in a registered underwritten public offering. On October 27, 2023, the underwriter exercised in full, its over-allotment option by purchasing an additional approximately $ 3.0 million aggregate principal amount of the 2027 Senior Notes. The interest rates are fixed at 9.00 % per annum and are payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year, commencing on December 31, 2023, and until maturity. The Notes will mature on January 31, 2027. The total net proceeds from the debt offering, after deducting initial purchase discounts and debt issuance costs, were approximately $ 30.6 million. The Company intends to use the net proceeds from the offering for general corporate purposes, including funding future acquisitions and investments, repaying indebtedness, making capital expenditures, and funding working capital. 54 The following table summarizes the outstanding balance of the Notes, net of debt issuance costs (in thousands): December 31, 2024 December 31, 2023 2027 Senior Notes 32,969 32,969 Debt issuance costs ( 1,557 ) ( 2,188 ) Total Long-term debt, net 31,412 30,781 The Company’s future principal obligations for the notes were as follows (in thousands): December 31, 2024 2025 — 2026 — 2027 32,969 Total unsecured senior notes, net 32,969 The Company may redeem the Notes for cash in whole or in part at any time (i) on or after September 30, 2025 (the “First Call Date”) and prior to September 30, 2026, at a price equal to the sum of 102 % of their principal amount, and (ii) on or after September 30, 2026 at a price equal to the sum of 100 % of their principal amount, plus (in each case noted above) accrued and unpaid interest to, but excluding, the date of redemption. At any time prior to the First Call Date, the Company may, at its option, redeem the Notes for cash, in whole at any time or in part from time to time at a redemption price equal to (i) 100 % of the principal amount of Notes redeemed, plus (ii) a Make-Whole Amount (as defined in the Indenture), plus (iii) accrued and unpaid interest, if any, to, but excluding, the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Notes. Additionally, upon the occurrence of a Triggering Event (as defined in the Indenture), holders of the Notes will have the right to require the Company to make an offer to repurchase all or any portion of their Notes for cash at a purchase price equal to 100 % of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of purchase. The Notes are senior unsecured obligations of the Company and rank equal in right of payment with the Company’s existing and future senior unsecured indebtedness. The Company evaluated the 2027 Senior Notes for derivatives pursuant to Accounting Standard Codification ("ASC") 815, " Derivatives and Hedging ," and identified an embedded derivative that required bifurcation as the feature is not clearly and closely related to the host instrument. The embedded derivative was a default provision, which could require additional interest payments. The Company reassesses the feature annually to determine if it requires separate accounting. There have been no changes to the Company’s assessment that the fair value of the embedded derivative is immaterial through December 31, 2024. 55 Note 9. Commitments and Contingencies Lease Obligations Topic 842, Leases, establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company's leases consist of operating leases for office space. The Company determines if an arrangement is a lease at inception. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. All the Company’s material leases are operating leases. Right-of-use ("ROU") assets related to operating leases are included on the consolidated balance sheets in other non-current assets. Operating lease cost is recognized over the lease term on a straight-line basis and is recorded within general and administrative expenses on the consolidated statements of income. In March of 2023, the Company entered into a new lease for office space in Dallas, Texas on Sherry Lane. The Company’s corporate office space in Dallas, Texas totals approximately 4,450 square feet. On June 10, 2024, the Company entered into a lease termination agreement to its Preston Road office lease in Dallas (the “Lease Termination”). The Lease Termination terminated the Company’s rights and obligations with respect to the leased premises on June 30, 2024. As such, the ROU assets and operating lease liabilities were written off, and the Company recorded a gain of $ 3 thousand for the year ended December 31, 2024 and paid an early termination fee of $ 9 thousand. The Enteris headquarters is located in Boonton, New Jersey, where Enteris leases approximately 32,000 square feet of space. Total rent expense recognized under the lease was $ 0.3 million for both the years ended December 31, 2024 and 2023. The office lease expires in December 2029 with an option to renew for an additional five years . Cash paid for amounts included in the measurement of operating lease liabilities was $ 0.5 million and $ 0.4 million for the years ended December 31, 2024 and 2023 and right-of-use assets obtained in exchange for new operating lease obligations was $ 0.5 million and $ 0.6 million. The components of lease cost is as follows (in thousands): December 31, 2024 2023 Operating lease cost $ 474 $ 472 Variable lease cost 63 49 Total lease cost $ 537 $ 521 Supplemental balance sheet information related to operating leases is as follows (in thousands): December 31, Balance Sheet Location 2024 2023 Operating lease right-of-use assets (1) Other non-current assets $ 518 $ 2,085 Operating lease liabilities, current Other current liabilities 130 367 Operating lease liabilities, non-current Other non-current liabilities 468 1,863 Total operating lease liabilities (1) $ 598 $ 2,230 (1) As of December 31, 2024 operating lease right-of-use assets exclude $ 1.2 million that are included in assets held for sale, net, on the consolidated balance sheet. See Note 7. (2) As of December 31, 2024 total operating lease liabilities exclude $ 1.3 million that are included in liabilities held for sale on the consolidated balance sheet. See Note 7. December 31, 2024 2023 Weighted-average remaining lease term (years) 3.7 5.3 Weighted-average discount rate 7.1 % 6.3 % 56 Future minimum rent on the Company's operating leases is as follows (in thousands): 2025 179 2026 183 2027 188 2028 128 Total future lease payments (1) $ 678 (1) As of December 31, 2024, total future lease payments exclude $ 1.4 million of lease payments related to held for sale leases, of which $ 0.3 million are due in 2025. Contingent Consideration During fiscal year 2019 the Company recorded contingent consideration related to the 2019 acquisition of Enteris and sharing of certain milestone and royalties due to Enteris pursuant to the License Agreement. Contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in the estimated fair value recognized in earnings. During the year ended December 31, 2024, it was determined the milestones and royalties pursuant to the License Agreement would not be realized as a result of non-viability of the product covered by the License Agreement. Accordingly, the Company concluded that the liability for contingent consideration, previously held at its estimated fair value of $ 4.9 million, should be $ 0 . The write-off of this contingent consideration liability resulted in a gain of $ 4.9 million during the year ended December 31, 2024, and is included in the "Change in fair value of acquisition-related contingent consideration" caption of our consolidated statements of income. Unfunded Commitments As of December 31, 2024, the Company's unfunded commitments were as follows (in millions): MedMinder Systems, Inc. $ 2.5 Relief 3.3 Total unfunded commitments $ 5.8 Per the terms of the royalty purchase or credit agreements, unfunded commitments are contingent upon reaching an established revenue threshold or other performance metrics on or before a specified date or period of time, and in the case of loan transactions, are subject to being advanced as long as an event of default does not exist. Litigation The Company is involved in, or has been involved in, arbitrations or various other legal proceedings that arise from the normal course of its business. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material impact on the Company’s results of operations, balance sheets and cash flows due to defense costs, and divert management resources. The Company cannot predict the timing or outcome of these claims and other proceedings. As of December 31, 2024, the Company is not involved in any arbitration and/or other legal proceeding that it expects to have a material effect on its business, financial condition, results of operations and cash flows. Indemnification As permitted by Delaware law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving in such capacity, or in other capacities at the Company’s request. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any such amounts. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is insignificant. Accordingly, the Company had no liabilities recorded for these agreements as of December 31, 2024 and 2023. 57 Note 10. Stockholders' Equity Common Stock The total number of shares of common stock, $ 0.001 par value, that the Company is authorized to issue is 250,000,000 . Issuer Purchases of Equity Securities On May 31, 2022, the Board authorized a share repurchase program under which the Company was previously authorized to repurchase up to $ 10.0 million of the Company’s outstanding shares of common stock. The previous repurchase periods under this program were July 1, 2022 through May 15, 2023 and May 16, 2023 through May 15, 2024 (the "Prior Repurchase Programs"). On May 16, 2024, the Company announced that the Board had authorized the Company to repurchase up to $ 10.0 million of the Company’s outstanding shares of common stock from time-to-time until May 16, 2025, through a trading plan established in compliance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act (the “Current Repurchase Program”). The actual timing, number and value of shares repurchased under the Current Repurchase Program will depend on several factors, including the constraints specified in the Rule 10b5-1 trading plan, price, and general market conditions. There is no guarantee as to the exact number of shares that will be repurchased under the Current Repurchase Program. Our Board may also suspend or discontinue the Current Repurchase Program at any time, in its sole discretion. The purchase period for the Current Repurchase Program is May 16, 2024 through May 16, 2025. As of December 31, 2024, the Company has repurchased an aggregate of 793,411 shares under the Prior Repurchase Programs and Current Repurchase Program at a total cost of $ 13.5 million, or $ 16.99 per share. As of December 31, 2024, the maximum dollar value of shares that may yet be purchased under the Current Repurchase Program was approximately $ 5.4 million of shares of common stock. Preferred Stock The Company’s Board may, without further action by the stockholders, issue one or more series of preferred stock and fix the rights and preferences of those shares, including the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, terms of redemption, redemption price or prices, liquidation preferences, the number of shares constituting any series and the designation of such series. As of December 31, 2024, no shares of preferred stock have been issued. Stock Compensation Plans The Company’s 2010 Stock Incentive Plan (the “2010 Stock Incentive Plan”) provides for options, restricted stock, and other customary forms of equity to be granted to the Company’s directors, officers, employees, and independent contractors. All forms of equity incentive compensation are granted at the discretion of the Board and have a term not greater than 10 years from the date of grant. The calculation of the fair values of our stock-based compensation plans requires estimates that require management’s judgments. Under ASC 718, Compensation - Stock Compensation, the fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. The valuation models require assumptions and estimates to determine expected volatility, expected life and expected risk-free interest rates. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. The risk-free interest rate assumption was based on the yield on zero-coupon U.S. Treasury strips at the award grant date. There were no options granted in the fiscal years ended December 31, 2024 and 2023. The following table summarizes activities under the 2010 Stock Incentive Plan for the indicated periods: Options Outstanding Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Balances, December 31, 2022 90,000 $ 10.88 6.3 $ 364 Options canceled and retired ( 22,039 ) 16.29 Options exercised ( 461 ) 16.29 Balances, December 31, 2023 67,500 12.70 5.0 326 Options exercised ( 18,750 ) 12.50 Balances, December 31, 2024 48,750 12.78 3.8 137 Options vested and exercisable and expected to be vested and exercisable at December 31, 2024 48,750 $ 12.78 3.8 $ 137 Options vested and exercisable at December 31, 2024 48,750 $ 12.78 3.8 $ 137 58 At December 31, 2024, there were approximately 670,235 s hares reserved for issuance under t he 2010 Stock Incentive Plan, a nd the Company had no unrecognized stock option expense for time-based awards. The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2024: Exercise Prices Number Outstanding Weighted-Average Remaining Contractual Life (in years) Weighted-Average Exercise Price per Share Number Exercisable Weighted-Average Exercise Price per Share $ 9.61 15,000 1.5 $ 9.61 15,000 $ 9.61 $ 12.50 18,750 4.4 $ 12.50 18,750 $ 12.50 $ 16.29 15,000 5.4 $ 16.29 15,000 $ 16.29 Total 48,750 3.8 $ 12.78 48,750 $ 12.78 Employee stock-based compensation expense recognized for time-vesting options for the years ended December 31, 2024 and 2023, uses the Black-Scholes option pricing model for estimating the fair value of options granted under the Company’s equity incentive plans. Risk-free interest rates for the options were taken from the Daily Federal Yield Curve Rates on the grant dates for the expected life of the options as published by the Federal Reserve. The expected volatility was based upon historical data and other relevant factors such as the Company’s changes in historical volatility and its capital structure, in addition to mean reversion. Employee stock-based compensation expense recognized for market performance-vesting options uses a binomial lattice model for estimating the fair value of options granted under the Company’s equity incentive plan. In calculating the expected life of stock options, the Company determines the amount of time from grant date to exercise date for exercised options and adjusts this number for the expected time to exercise for unexercised options. The expected time to exercise for unexercised options is calculated from grant as the midpoint between the expiration date of the option and the later of the measurement date or the vesting date. In developing the expected life assumption, all amounts of time are weighted by the number of underlying options. During the year ended December 31, 2024, 71,039 restricted shares were granted and 24,013 restricted shares vested. During the year ended December 31, 2023, 25,944 restricted shares were granted and 15,989 restricted shares vested. As of December 31, 2024 and 2023, there were 129,145 and 97,283 shares of restricted stock outstanding, respectively. During the years ended December 31, 2024 and 2023 , the Board approved compensation for Board services by granting 19,336 and 9,897 shares, respectively, of common stock as compensation for the non-employee directors. The Company recorded $ 0.4 million and $ 0.3 million in Board stock-based compensation expense during the years ended December 31, 2024 and 2023, respectively. The Company recorded aggregate stock-based compensation expense, including the quarterly and annual Board grants, of $ 0.9 million and $ 0.5 million during the years ended December 31, 2024 and 2023, respectively. 59 Note 11. Fair Value Measurements The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels. Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets. Level 3: Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources. Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels during the years ended December 31, 2024 and 2023. The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments, other than investment in affiliates. Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized. Cash and cash equivalents The carrying amounts reported in the balance sheet for cash, cash equivalents, and restricted cash approximate those assets’ fair values. Securities available for sale Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Finance Receivables The fair values of finance receivables are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the finance receivables. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. These receivables are classified as Level 3. Finance receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected below. Contingent Consideration The fair value measurements of the contingent consideration obligations arising from business combinations are classified as Level 3 estimates under the fair value hierarchy, as these items have been valued using unobservable inputs. These inputs include: (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the factors on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Changes in fair value of this obligation are recorded as income or expense within operating income in our consolidated statements of income. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement. As noted above in Note 9, the acquisition-related contingent consideration liability was written down to $ 0 during the year ended December 31, 2024 due to non-viability of the underlying product. 60 Marketable Investments If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities would be classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets or broker quotes utilizing observable inputs, and accordingly these securities would be classified as Level 2. If market prices are not available and there are no observable inputs, then fair value would be estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes. Such securities would be classified as Level 3, if the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company checks the validity of received prices based on comparison to prices of other similar assets and market data such as relevant benchmark indices. Available-for-sale securities are measured at fair value on a recurring basis, while securities with no readily available fair market value are not, but estimates of fair value are reflected below. Derivative Instruments For exchange-traded derivatives, fair value is based on quoted market prices, and accordingly, would be classified as Level 1. For non-exchange traded derivatives, fair value is based on option pricing models and are classified as Level 3. The Company uses a foreign currency forward contract to manage the impact of fluctuations in foreign currency denominated cash flows expected to be received from one of its royalty finance receivables denominated in a foreign currency. The foreign currency forward contract is not designated as a hedging instrument, and changes in fair value are recognized in earnings. The foreign currency forward contract was recorded in other non-current assets in the consolidated balance sheets as of December 31, 2024 and December 31, 2023 and totaled to $ 2.5 million and $ 1.0 million, respectively. The Company recognized a $ 1.5 million and $ 1.7 million gain due to changes in fair value related to its foreign currency forward contract for the years ended December 31, 2024 and December 31, 2023, respectively. 61 The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 (in thousands): Total Carrying Value in Consolidated Balance Sheets Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets Warrant assets $ 4,366 $ — $ — $ 4,366 Marketable investments 580 559 — 21 Foreign currency forward contract 2,475 — — 2,475 The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 (in thousands): Total Carrying Value in Consolidated Balance Sheets Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets Warrant assets $ 1,759 $ — $ — $ 1,759 Marketable investments 48 — — 48 Foreign currency forward contract 974 — — 974 Financial liabilities: Contingent consideration payable $ 4,900 $ — $ — $ 4,900 The contingent consideration payable was valued using a discounted cash flow approach and included a significant unobservable input which is the discount rate. During the year ended December 31, 2024, there was a write off of the full balance of contingent consideration liability due to the non-viability of the underlying product. See Note 9 for further information. The changes on the value of the warrant assets during the years ended December 31, 2024 and 2023 w ere as follows (in thousands): Fair Value - January 1, 2023 $ 1,220 Issuance 1,364 Cancelled ( 770 ) Decrease in fair value ( 55 ) Fair Value - December 31, 2023 1,759 Issuance 1,241 Exercised ( 985 ) Increase in fair value 2,406 Loss on foreign currency transactions ( 55 ) Fair Value - December 31, 2024 $ 4,366 62 The Company holds warrants issued to the Company in conjunction with certain term loan investments. These warrants meet the definition of a derivative and are included in the consolidated balance sheets. The fair values for warrants outstanding, which do not have a readily determinable value, are measured using the Black-Scholes option pricing model. The following ranges of assumptions were used in the models to determine fair value: December 31, 2024 December 31, 2023 Dividend rate range — — Risk-free rate range 4.2 % to 4.5 % 3.8 % to 4.8 % Expected life (years) range 1.9 to 6.9 1.2 to 5.8 Expected volatility range 56.0 % to 177.7 % 75.3 % to 154.3 % The warrant assets are valued using a market approach and include significant unobservable inputs such as risk-free rate, expected life, and expected volatility. For the year ended December 31, 2024, the risk-free rate range weighted average was 4.4 %, and had a median of 4.4 %. For the year ended December 31, 2023, the risk-free rate range weighted average was 4.3 %, and had a median of 3.8 %. For the year ended December 31, 2024, the expected life range weighted average was 5.8 years, and had a median of 4.3 years. For the year ended December 31, 2023, the expected life range weighted average was 3.4 years, and had a median of 4.4 years. For the year ended December 31, 2024, the expected volatility range weighted average was 65.6 %, and had a median of 104.3 %. For the year ended December 31, 2023, the expected volatility range weighted average 124.6 %, and median of 134.4 %. As of December 31, 2024, the Company had three royalty investments, Best, Ideal, and Flowonix, that were deemed to be impaired based on reductions in carrying value. As of December 31, 2024, the Company had one term loan, BIOLASE, that was deemed to be impaired based on reductions in carrying value. As of December 31, 2023 , the Company had one royalty, Best, that was deemed to be impaired based on reductions in carrying value. The following table presents these royalty and the loans measured at amortized cost using the effective interest method, which approximates fair value, on a nonrecurring basis (in thousands): Total Carrying Value in Consolidated Balance Sheets Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2024 $ 14,830 $ — $ — $ 14,830 December 31, 2023 $ 2,587 $ — $ — $ 2,587 There were no liabilities measured at fair value on a nonrecurring basis as of December 31, 2024 or 2023. The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments measured at fair value on a recurring and non-recurring basis. The following table presents the fair value of financial assets as of December 31, 2024 (in thousands): Carrying Value Fair Value Level 1 Level 2 Level 3 Financial Assets Finance receivables, net $ 277,760 $ 277,760 $ — $ — $ 277,760 Marketable investments 580 580 559 — 21 Warrant assets 4,366 4,366 — — 4,366 Foreign currency forward contract 2,475 2,475 — — 2,475 63 The following table presents the fair value of financial assets and liabilities as of year ended December 31, 2023 (in thousands): Carrying Value Fair Value Level 1 Level 2 Level 3 Financial Assets Finance receivables, net $ 274,504 $ 274,504 $ — $ — $ 274,504 Marketable investments 48 48 — — 48 Warrant assets 1,759 1,759 — — 1,759 Foreign currency forward contract 974 974 — — 974 Financial liabilities Contingent consideration payable $ 4,900 $ 4,900 $ — $ — $ 4,900 Note 12. Revenue Recognition As of December 31, 2024, Enteris (Pharmaceutical Development Segment) is classified as held for sale. The Company's Pharmaceutical Development segment recognizes revenues received from contracts with its customers by revenue source, as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow. The Company's Finance Receivables segment does not have any revenues received from contracts with customers. The following table provides the contract revenue recognized by revenue source for the years ended December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Pharmaceutical Development Segment License Agreement $ 49 $ 273 Pharmaceutical development and other 3,567 931 Total contract revenue $ 3,616 $ 1,204 The Company’s contract liabilities represent advance consideration received from customers and are recognized as revenue when the related performance obligation is satisfied. The Company’s contract liabilities are presented as deferred income as of December 31, 2024 in the consolidated balance sheets (in thousands): December 31, 2024 Pharmaceutical Development Segment Balance at January 1, 2024 $ 9 Income recognized ( 9 ) Deferred income 1,500 Balance at December 31, 2024 $ 1,500 During the year ended December 31, 2024, the Company recognized the full remaini ng balance of $ 9 thousand of 2023 deferred income from satisfaction of performance obligations. The Company did not have any contra ct assets as of December 31, 2024 or December 31, 2023. Enteris Exclusive Option and Asset Purchase Agreement With an effective date of January 1, 2024, we entered into an Option and Asset Purchase Agreement with a strategic partner on March 14, 2024, which granted the strategic partner 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. The strategic partner must exercise the Option by or before January 1, 2026. As of December 31, 2024, 64 Enteris is classified as held for sale as the Option is expected to be exercised within the next 12-months - see Note 7 for further details. In exchange for the exclusive purchase option the strategic partner is to provide consideration in the form of an "option fee" and "guaranteed revenue payments." The option fee is broken into two components: A low-single digit million fee due within 30 business days of executing the agreement; and should the option not be exercised by the first anniversary of the effective date, an additional low-single digit million fee will be due at that time. The first option fee was paid in April 2024. Option fee payments will be included in deferred income until the earlier of term expiration or exercise of the purchase option. Should the strategic partner exercise the purchase option, any option fee payments made will be applied towards the purchase price. The guaranteed revenue payments include two components: A mid-single digit million guaranteed revenue payment in 2024 and a mid-single digit million guaranteed revenue payment in 2025. The revenue was derived by the strategic partner under an existing collaboration agreement, and the strategic partner was to pay the difference should the minimum amount not be met each year, which was $ 0.4 million at the end of 2024. Each year's guaranteed revenue amount is to be paid in two installments semi-annually each year. Should revenue exceed the 2024 or 2025 guaranteed revenue amounts after receiving a difference payment in the first half of the year, we must repay the partner the amount of such overpayment. Guaranteed revenue of $ 0.4 million was recognized during the year ended December 31, 2024. Note 13. Segment Information Selected financial and descriptive information is required to be provided about reportable operating segments, considering a “management approach” concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the Company for making operating decisions, allocating resources, and assessing performance. Consequently, the segments are evident from the structure of the Company’s internal organization, focusing on financial information that the Company’s CEO uses to make decisions about the Company’s operating matters. As described in Note 1, SWK Holdings Corporation and Summary of Significant Accounting Policies, the Company has determined it has two reportable segments: Finance Receivables and Pharmaceutical Development, and each are individually managed and provide separate services. Revenues by segment represent revenues earned on the services offered within each segment. The Company does not report results by geographic region, as this metric is not used by the Company’s chief executive officer in assessing performance or allocating resources to the segments. All revenues are generated through external customers. Segment performance is evaluated based on several factors, including income (loss) from continuing operations before income taxes. Management uses this measure of profit (loss) to evaluate segment performance because the Company believes this measure is indicative of performance trends and the overall earnings potential of each segment. The Company does not report assets by reportable segment, as this metric is not used by the Company's CEO in assessing performance or allocating resources to the segments. As of December 31, 2024, Enteris is classified as held for sale (Pharmaceutical Development segment shown below) - see Note 7 for further details. 65 The following tables present financial information for the Company’s reportable segments for the periods indicated (in thousands): Year Ended December 31, 2024 Finance Receivables Pharmaceutical Development and Other Holding Company and Other Consolidated Revenue $ 40,787 $ 3,616 $ — $ 44,403 Other revenue 553 31 — 584 Provision for credit losses 12,756 — — 12,756 Loss on impairment of intangible assets — 5,771 — 5,771 Interest expense 1,078 8 3,599 4,685 Pharmaceutical manufacturing, research and development — 2,203 — 2,203 Change in fair value of acquisition-related contingent consideration — ( 4,900 ) — ( 4,900 ) Depreciation and amortization expense — 1,316 83 1,399 General and administrative expense 449 2,967 8,071 11,487 Other income (expense), net 7,194 — ( 408 ) 6,786 Income tax expense — — 4,884 4,884 Net income (loss) 34,251 ( 3,718 ) ( 17,045 ) 13,488 Year Ended December 31, 2023 Finance Receivables Pharmaceutical Development and Other Holding Company and Other Consolidated Revenue $ 36,346 $ 1,202 $ — $ 37,548 Other revenue 204 2 6 212 Provision for credit losses 1,912 — — 1,912 Impairment of goodwill — 8,404 — 8,404 Interest expense 982 3 864 1,849 Pharmaceutical manufacturing, research and development expense — 3,436 — 3,436 Depreciation and amortization expense — 2,525 52 2,577 Change in fair value of acquisition-related contingent consideration — ( 6,300 ) — ( 6,300 ) General and administrative expense 527 2,875 7,830 11,232 Other expense, net ( 13 ) ( 24 ) — ( 37 ) Income tax benefit — — ( 1,274 ) ( 1,274 ) Net income (loss) 33,116 ( 9,763 ) ( 7,466 ) 15,887 Included in Holding Company and Other are the expenses of the parent holding company and certain other enterprise-wide overhead costs, including public company costs and non-Enteris corporate employees, which have been included for purposes of reconciling to the consolidated amounts. 66 The following table presents total assets for the Company's reportable segments for the periods indicated (in thousands): December 31, 2024 2023 Total Assets Finance Receivables $ 299,248 $ 288,735 Pharmaceutical Development and Other 7,786 14,375 Holdings Company and Other 25,201 31,144 Total $ 332,235 $ 334,254 Note 14. Income Taxes The components of income before income tax expense (benefit) are as follows (in thousands): December 31, 2024 2023 U.S. $ 18,372 $ 14,613 The Company’s income tax expense (benefit) was as follows (in thousands): December 31, 2024 2023 Current expense State $ 78 $ 13 Deferred expense (benefit) Federal 4,879 ( 1,233 ) State ( 73 ) ( 54 ) Total income tax expense (benefit) $ 4,884 $ ( 1,274 ) The components of the income tax expense (benefit) are as follows (in thousands): December 31, 2024 2023 Federal tax provision at statutory rate $ 3,858 $ 3,070 Change in valuation allowance — ( 6,697 ) State taxes, net of federal income tax benefit ( 13 ) ( 52 ) Impairment of goodwill — 1,765 Mark-to-market adjustments ( 476 ) ( 50 ) Tax credits ( 4 ) ( 167 ) Contingent consideration revaluation ( 1,029 ) ( 1,323 ) Other 143 116 Write off of expired deferred tax assets 2,405 2,064 Total income tax expense (benefit) $ 4,884 $ ( 1,274 ) The Company records deferred tax assets if the realization of such assets is more likely than not to occur in accordance with accounting standards that address income taxes. Significant management judgment is required in determining whether a valuation allowance against the Company’s deferred tax assets is required. The Company has considered all available evidence, both positive and negative, such as historical levels of income and predictability of future forecasts of taxable income from existing investments, in determining whether a valuation allowance is required. The Company is also required to forecast future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the 67 exercise of significant management judgment. The Company focuses on forecasting future taxable income for the investment portfolio that exists as of the balance sheet date. Specifically, the Company evaluated the following criteria when considering a valuation allowance: • the history of tax net operating losses in recent years; • predictability of operating results; • profitability for a sustained period of time; and • level of profitability on a quarterly basis. As of December 31, 2024, the Company had cumulative net income before tax for the three years then ended. Based on its historical operating performance, the Company had previously concluded that it was more likely than not that the Company would not be able to realize the full benefit of the U.S. federal and state deferred tax assets in the future. However, at December 31, 2024 the Company has concluded that it is more likely than not that the Company will be able to realize approximately $ 23.5 million benefit of the U.S. federal and state deferred tax assets in the future. The Company 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 on a quarterly basis. Any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statements of income for the period that the adjustment is determined to be required. There was no valuation allowance against deferred tax assets as of December 31, 2024 and 2023, respectively. Deferred tax assets consist of the following (in thousands): December 31, 2024 2023 Deferred tax assets: Credit carryforward $ 2,899 $ 2,973 Provision for credit losses 2,433 2,967 Stock-based compensation 230 153 Other 2,999 2,438 Net operating losses 13,682 19,891 Gross deferred tax assets $ 22,243 $ 28,422 Deferred tax liabilities: Intangible assets 1,863 586 Other ( 622 ) ( 718 ) Valuation allowance — — Net deferred tax assets $ 23,484 $ 28,290 The Tax Reform Act of 1986 limits the use of NOLs and tax credit carryforwards in certain situations where stock ownership changes occur. In the event the Company has had a change in ownership, the future utilization of the Company’s net operating loss and tax credit carryforwards could be limited. As of December 31, 2024, the Company had NOL carryforwards for federal income tax purposes of approximately $ 58.1 million. The federal NOL carryforwards, if not offset against future income, will expire by 2037. Approximately $ 6.9 million can be carried forward indefinitely. The Company also had federal research carryforwards of $ 2.9 million. The federal research credits began to expire in 2023 and will fully expire by 2042. The Company records liabilities, where appropriate, for all uncertain income tax positions and recognizes potential accrued interest and penalties related to unrecognized tax benefits within income tax expense. As of December 31, 2024 and 2023, the Company had approximately $ 0.7 million and $ 0.6 million, respectively of unrecognized tax benefit, none of which would impact the effective tax rate if recognized. The Company does not expect the unrecognized tax benefits to change materially over the next twelve months. There are no tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within twelve months of December 31, 2024. The Company is subject to taxation in the U.S. and various state jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 1999 through December 31, 2024 due to 68 carryforward of unutilized net operating losses and research and development credits. The Company does not anticipate significant changes to its uncertain tax positions through December 31, 2024. Note 15. Subsequent Events On March 17, 2025, ANI Pharmaceuticals, Inc. exercised its buyout option related to the Iluvien royalty, which resulted in a payment of approximately $ 17.3 million to the Company. On March 19, 2025, in a separate transaction, the Company entered into a definitive agreement with Soleus Capital (“Soleus”) for the sale of substantially all of its remaining performing royalty portfolio for approximately $ 34.0 million in cash. The Soleus transaction is expected to close in approximately two weeks, subject to the satisfactory of customary conditions to closing. 69 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.