What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-06 compared with 2025-08-14 · 58 added, 47 removed, 193 unchanged (35% of the section changed)

6 unchanged sentences

Financial Statements, Note 10 of the notes to the unaudited condensed consolidated financial statements for further information regarding segment information.

Recent Developments

Agreement and Plan of Merger

On October 9, 2025, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Runway Growth Finance Corp., a Maryland corporation (“Parent”), RWAY Portfolio Holding Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Intermediary Sub”), RWAY Portfolio Corp., a Delaware corporation and a direct wholly owned subsidiary of Intermediary Sub (“Acquisition Sub”), and Runway Growth Capital LLC, a Delaware limited liability company (“Parent External Adviser”).

The Merger Agreement provides that, among other things and on the terms and subject to the conditions of the Merger Agreement, (i) Acquisition Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Intermediary Sub (the “Surviving Corporation”), or, in the alternative, the Company will merge with and into Acquisition Sub, with Acquisition Sub continuing as the surviving corporation and as a wholly owned subsidiary of Intermediary Sub (in either case, the “First Merger”), (ii) immediately after the First Merger, the Surviving Corporation will merge with and into Intermediary Sub (the “Second Merger”), with Intermediary Sub surviving the Second Merger as a wholly owned subsidiary of Parent, and (iii) immediately after the Second Merger, Intermediary Sub will merge with and into Parent (the “Third Merger” and, together with the Second Merger and the First Merger, the “Mergers”), with Parent continuing as the surviving corporation in the Third Merger.

The foregoing summary description of the Merger Agreement, the Mergers and the other transactions contemplated thereby is subject to and qualified in its entirety by reference to the Merger Agreement, a copy of which is attached hereto as Exhibit 2.01, and the terms of which are incorporated herein by reference.

Key Stockholder Agreement

Concurrently with the execution and delivery of the Merger Agreement, and as a condition and inducement to Parent’s willingness to enter into the Merger Agreement, Double Black Diamond Offshore Ltd.

(the “Key Stockholder”), a stockholder of the Company, has entered into a key stockholder agreement with Parent (the “Key Stockholder Agreement”) pursuant to which the Key Stockholder has, subject to the terms and conditions thereof, agreed, among other things, to vote its shares of Company Common Stock in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereunder, including the First Merger.

As of October 9, 2025, the Key Stockholder held approximately 69.9% of the voting power of the Company Common Stock.

The foregoing summary description of the Key Stockholder Agreement is subject to and qualified in its entirety by reference to the Key Stockholder Agreement, a copy of which is attached hereto as Exhibit 2.02 and the terms of which are incorporated herein by reference.

Finance Receivables Portfolio Overview

The table below provides an overview of our outstanding finance receivables transactions as of and for the three and six months ended June 30, 2025 (in thousands, except rate, share and per share data):

The table below provides an overview of our outstanding finance receivables transactions as of and for the three and nine months ended September 30, 2025 (in thousands, except rate, share and per share data):

Revenue Recognized

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Marketable Investments Number of Shares Funded Amount GAAP Balance Q3 2025

Secured Royalty Financing (Marketable Investment) (2), (3)

N/A $ 3,000 $ 6 $ — $ —

AOTI Common Stock (5)

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TBD $ — $ — $ — $ —

ImpediMed 12,491,870 $ 0.05 157 (26) (160)

ImpediMed Tranche 1 12,491,870 $ 0.05 180 29 (131)

ImpediMed Tranche 2 6,245,935 $ 0.05 90 (88) (88)

Aziyo Biologics, Inc.

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Tranche 2 600,000 $ 0.50 309 92 145

Biotricity, Inc.

Tranche 3 54,300 $ 2.21 13 (36) (36)

Biotricity, Inc Tranche 4 27,150 $ 2.21 13 (36) (36)

CDMO Manufacturer 211,442 $ 1.42 — — —

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Total $ 261,010 $ 10,822 $ 30,077

(1) US royalty was paid off continues to receive insignificant royalties on international sales.

(1) US royalty was paid off but continues to receive insignificant royalties on international sales.

(2) Investment considered partially impaired.

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(5) AOTI warrants exercised and converted to shares.

(6) Royalties sold as of June 30, 2025

(7) Investment was paid off during the six months ended June 30, 2025

(6) Royalties sold as of September 30, 2025

(7) Investment was paid off during the nine months ended September 30, 2025

(8) Elutia common stock received as part of amendment to term loan.

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Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.

We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the six months ended June 30, 2025, compared to those discussed in our Annual Report.

We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the nine months ended September 30, 2025, compared to those discussed in our Annual Report.

Recent Accounting Pronouncements

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Financial Statements, Note 1 of the notes to the unaudited condensed consolidated financial statements for a listing of recent accounting pronouncements and their potential impact to our consolidated financial statements.

Comparison of the three months ended June 30, 2025 and 2024 ( in millions )

Comparison of the three months ended September 30, 2025 and 2024 ( in millions )

Three Months Ended

September 30,

2025 2024 Change $

Revenues $ 10.9 $ 10.4 $ 0.5

Provision for credit losses 0.8 4.1 (3.3)

Provision (benefit) for credit losses (0.9) 1.4 (2.3)

Loss on impairment of intangible assets 0.2 — 0.2

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Pharmaceutical manufacturing, research and development expense 0.1 0.6 (0.5)

Change in fair value of acquisition-related contingent consideration — (4.9) 4.9

Loss on disposal of inventory 0.3 — 0.3

Depreciation and amortization expense — 0.2 (0.2)

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Net income 8.8 3.5 5.3

Revenues decreased to $10.1 million for the three months ended June 30, 2025 from $10.8 million for the three months ended June 30, 2024.

The $0.7 million decrease in revenue for the three months ended June 30, 2025 was primarily due to a $1.2 million decrease in Finance Receivables segment revenue and a $0.5 million increase in Pharmaceutical Development segment revenue.

The finance receivables segment revenue decreased primarily due to the sale of the majority of the Company's royalty portfolio.

The increase in pharmaceutical development revenues was due to the collaboration agreement with Aptar.

Provision for Credit Losses

Revenues increased to $10.9 million for the three months ended September 30, 2025 from $10.4 million for the three months ended September 30, 2024.

The $0.5 million increase in revenue for the three months ended September 30, 2025 was primarily due to a $1.1 million increase in Finance Receivables segment revenue.

The finance receivables segment revenue increased primarily due to the acceleration of exit fees earned on early payoff of the loan with Elutia, Inc.

Provision (benefit) for Credit Losses

Our provision for credit losses is established through charges or credits to income in the form of the provision in order to bring our allowance for credit losses for loans and unfunded commitments to a level deemed appropriate by management.

We recognized a net provision for credit losses of $0.8 million and $4.1 million during the three months ended June 30, 2025 and 2024, respectively.

The decrease is primarily due to impairments totaling $4.3 million during the same period in the prior year.

We recognized a net benefit for credit losses of $0.9 million and a provision for credit losses of $1.4 million during the three months ended September 30, 2025 and 2024, respectively.

The change is primarily due to the release of CECL reserves related to the early payoff of the loan with Elutia, Inc.

Interest Expense

Interest expense consists mostly of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs.

Interest expense remained consistent for the three months ended June 30, 2025 as compared to the same period in the previous period.

Interest expense remained consistent for the three months ended September 30, 2025 as compared to the same period in the previous period.

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense remained consistent for the three months ended June 30, 2025 as compared to the same period in the previous year resulting in an immaterial change in total expense.

Pharmaceutical manufacturing, research and development expense decreased for the three months ended September 30, 2025 as compared to the same period in the previous year as a result of the MOD3 asset sale.

Depreciation and Amortization Expense

The $0.4 million decrease in depreciation and amortization expense for the three months ended June 30, 2025 primarily related to no longer amortizing intangible assets related to the Cara license as the intangible assets were fully impaired.

In addition, MOD3 was classified as held for sale for the current period resulting in no depreciation on fixed assets included in held for sale.

The $0.2 million decrease in depreciation and amortization expense for the three months ended September 30, 2025 primarily due to the suspension of depreciation and amortization on assets held for sale and the subsequent sale of those assets.

General and Administrative Expense

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and corporate governance expenses.

General and administrative expenses remained consistent for the three months ended June 30, 2025 as compared to 2024.

General and administrative expenses increased for the three months ended September 30, 2025 as compared to 2024, primarily due to increased legal fees partially offset by a reduction in compensation costs as a result of the MOD3 asset sale.

Other Income (Expense), Net

Other income (expense), net decreased to an expense of $0.1 million for the three months ended June 30, 2025 from other income of $3.8 million for the three months ended June 30, 2024.

The $3.9 million decrease primarily relates to the gain on revaluation of finance receivables and gain on exercise of warrants in the same period the prior year.

Other income (expense), net increased to an income of $4.0 million for the three months ended September 30, 2025 from income of $0.3 million for the three months ended September 30, 2024.

The $3.7 million increase primarily relates to the gain on fair value of adjustments of warrants and gain on sale of the MOD3 assets.

Income Tax Expense

Income tax expense remained consistent for the three months ended June 30, 2025 as compared to the same period in the previous year resulting in an immaterial change in total expense.

Comparison of the six months ended June 30, 2025 and 2024 ( in millions )

Six Months Ended

Income tax expense increased for the three months ended September 30, 2025 as compared to the same period in the previous year as a result of the change in the provision for credit losses.

Comparison of the nine months ended September 30, 2025 and 2024 ( in millions )

Nine Months Ended

September 30,

2025 2024 Change $

4 unchanged sentences

Pharmaceutical manufacturing, research and development expense 1.6 1.6 —

Loss on disposal of inventory 0.3 — 0.3

Change in fair value of acquisition-related contingent consideration — (4.9) 4.9

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Net income 16.9 7.6 9.3

Revenues decreased to $21.9 million for the six months ended June 30, 2025 from $22.2 million for the six months ended June 30, 2024.

The $0.3 million decrease in revenue for the six months ended June 30, 2025 consisted of a $1.5 million decrease in Finance Receivables segment revenue offset by a $1.2 million increase in Pharmaceutical Development segment revenue.

Revenues increased to $32.8 million for the nine months ended September 30, 2025 from $32.6 million for the nine months ended September 30, 2024.

The $0.2 million increase in revenue for the nine months ended September 30, 2025 consisted of a $0.4 million decrease in Finance Receivables segment revenue offset by a $0.6 million increase in Pharmaceutical Development segment revenue.

The $0.4 million decrease in Finance Receivables segment revenue was primarily due to a decrease in interest, fees and royalties earned on finance receivables that were paid off or sold during the period.

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We recognized a net benefit for credit losses of $0.7 million during the six months ended June 30, 2025 and a $9.4 million provision during the six months ended June 30, 2024.

The decrease was primarily due to impairments included within the provision for credit losses during the six months ended June 30, 2024.

We recognized a net benefit for credit losses of $1.6 million during the nine months ended September 30, 2025 and a provision of $10.8 million during the nine months ended September 30, 2024.

The decrease was primarily due to impairments included within the provision for credit losses during the nine months ended September 30, 2024.

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

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Interest expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs.

Interest expense remained consistent for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Interest expense remained consistent for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense increased from $1.1 million for the six months ended June 30, 2024 to $1.4 million for the six months ended June 30, 2025.

The $0.3 million increase was primarily due to increased compensation costs due to additional headcount during the period.

Pharmaceutical manufacturing, research and development expense remained consistent for the nine months ended September 30, 2025 as compared to the same period in the prior year.

Depreciation and Amortization Expense

The $0.9 million decrease in depreciation and amortization expense for the six months ended June 30, 2025 primarily consists of a decrease in amortization expense related to no longer amortizing intangible assets related to the Cara license as the intangible assets were fully impaired during the three months ended June 30, 2024.

In addition, MOD3 was classified as held for sale for the current period resulting in no depreciation on fixed assets included in held for sale.

The $1.2 million decrease in depreciation and amortization expense for the nine months ended September 30, 2025 primarily consists of a decrease in amortization expense related to no longer amortizing intangible assets related to the license with Cara Therapeutics, Inc, as the intangible assets were fully impaired during the three months ended June 30, 2024.

In addition, MOD3 was classified as held for sale for the current period resulting in no depreciation on fixed assets classified as held for sale.

General and Administrative Expense

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and corporate governance expenses.

General and administrative expenses increased to $6.1 million for the six months ended June 30, 2025 from $5.6 million for the six months ended June 30, 2024 primarily due to an increase in compensation costs during the period.

General and administrative expenses increased to $9.4 million for the nine months ended September 30, 2025 from $8.6 million for the nine months ended September 30, 2024 primarily due to an increase in compensation costs and legal costs during the period.

Other Income (Expense), Net

Other income (expense), net decreased to an expense of $2.4 million for the six months ended June 30, 2025 from an income of $3.4 million for the six months ended June 30, 2024.

The $5.8 million decrease is primarily due to net losses on finance receivables in the current period compared to net gains on finance receivables during the same period in the prior year.

Other income (expense), net decreased to income of $1.7 million for the nine months ended September 30, 2025 from income of $3.7 million for the nine months ended September 30, 2024.

The $2.0 million decrease is primarily due to a loss on the revaluation of finance receivables in the current period compared to a gain on the revaluation of finance receivables during the same period in the prior year.

Income Tax Expense

During the six months ended June 30, 2025 and 2024 we recognized $2.3 million and $1.3 million of income tax expense, respectively.

Income tax expense increased period over period due to the release of valuation allowance on deferred tax assets of $1.0 million during the six months ended June 30, 2024 and a decrease in the Company's provision for credit losses compared to the same period in the prior year.

During the nine months ended September 30, 2025 and 2024 we recognized $4.2 million and $2.2 million of income tax expense, respectively.

Income tax expense increased period over period due to the release of valuation allowance on deferred tax assets of $1.0 million during the nine months ended September 30, 2024 and a change in the Company's provision for credit losses compared to the same period in the prior year.

Liquidity and Capital Resources

As of June 30, 2025, we had $8.0 million in cash and cash equivalents, compared to $5.9 million as of December 31, 2024.

As of September 30, 2025, we had $10.2 million in cash and cash equivalents, compared to $5.9 million as of December 31, 2024.

The primary driver of the $4.3 million increase in our cash balance was primarily related to interest, fees, principal and royalty payments received on finance receivables, and proceeds from the sale of finance receivables.

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On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million.

As of June 30, 2025, there was $0.3 million outstanding amount under the new Credit Agreement.

As of September 30, 2025, there was no outstanding amount under the new Credit Agreement.

The $60.0 million Credit Agreement contains a $5.0 million liquidity covenant, bringing the total amount available for borrowing to $55.0 million.

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

As of June 30, 2025, our finance receivables portfolio contains $237.6 million of net finance receivables and $0.6 million of marketable investments.

As of September 30, 2025, our finance receivables portfolio contains $245.4 million of net finance receivables and $0.3 million of marketable investments.

We expect these assets to generate positive cash flows during the remainder of 2025.

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We believe we are well positioned to benefit should market interest rates rise in the future.

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

Since the timing of any investment is difficult to predict, our Finance Receivables segment may not be able to generate positive cash flow above what our existing assets are expected to produce in 2025.

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We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

As of June 30, 2025, we had $7.5 million in unfunded commitments.

As of September 30, 2025, we had $2.5 million in unfunded commitments.

Please refer to Item 1., Financial Statements, Note 7 of the notes to the unaudited condensed consolidated financial statements for further information regarding the Company’s commitments and contingencies.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis