SWK Holdings Corp

Previous wording

We have organized our operations into two segments: Finance Receivables and Pharmaceutical Development. These segments reflect the way we evaluate our business performance and manage our operations. Please refer to Part I, Item 1,Business and Part II, Item 8,Financial Statements, Notes 1 and 11 of the notes to the consolidated financial statements for further information regarding segment information.

Current wording

We have organized our operations into two segments: Finance Receivables and Pharmaceutical Development. These segments reflect the way we evaluate our business performance and manage our operations. Please refer to Part I, Item 1, Business and Part II, Item 8, Financial Statements, Notes 1 and 13 of the notes to the consolidated financial statements for further information regarding segment information.

Previous wording

With an effective date of January 1, 2024, we entered into an exclusive option and asset purchase agreement with Aptar on March 14, 2024 which granted Aptar an exclusive option to acquire certain of Enteris’ assets related to its business of providing good manufacturing practice (GMP) manufacturing and clinical supply services through Phase 1 and 2 to third parties, subject to certain exclusions. Aptar must exercise the option by or before January 1, 2026. Please refer to Part II, Item 8,Financial Statements, Note 13 of the notes to the consolidated financial statements for further information regarding the Option and Asset Purchase Agreement with Aptar.

Current wording

With an effective date of January 1, 2024, we entered into an exclusive 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. Please refer to Part II, Item 8, Financial Statements, Note 13 and Note 7 of the notes to the consolidated financial statements for further information regarding the Option and Asset Purchase Agreement with the strategic partner and held for sale classification.

Previous wording

The recognition of certain net deferred tax assets of our reporting entities are dependent upon, but not limited to, the future profitability of the reporting entity, when the underlying temporary differences will reverse, and tax planning strategies. Further, management’s judgment regarding the use of estimates and projections is required in assessing our ability to realize the deferred tax assets relating to NOL carryforwards, as most of these assets are subject to limited carryforward periods.

Current wording

The recognition of certain net deferred tax assets of our reporting entities is dependent upon, but not limited to, the future profitability of the reporting entity, when the underlying temporary differences will reverse, and tax planning strategies. Further, management’s judgment regarding the use of estimates and projections is required in assessing our ability to realize the deferred tax assets relating to NOL carryforwards, as most of these assets are subject to limited carryforward periods.

Previous wording

The following table summarizes the results of our operations for the years ended December 31, 2023 and 2022:

Current wording

The following table summarizes the results of our operations:

Previous wording

We generated revenues of $37.8 million and $41.5 million for the years ended December 31, 2023 and 2022, respectively. The $3.7 million decrease in revenue for the year ended December 31, 2023, consisted mainly of a $4.3 million decrease in Pharmaceutical Development segment revenue and a $0.9 million increase in Finance Receivables segment revenue. The decrease in Pharmaceutical Development segment revenue was primarily due to $5.0 million of milestone revenue related to Enteris’ license agreement ("License Agreement") with Cara Therapeutics, Inc. ("Cara") received during the year ended December 31, 2022, and no similar milestone revenue was recognized during year end December 31, 2023. The $0.9 million increase in Finance Receivables segment revenue was primarily due to $9.0 million increase in interest and fees earned due to funding new and existing loans and a $3.8 million increase in interest earned on our finance receivables due to an overall increase in reference rates. The increase was partially offset by a net $1.2 million decrease in royalty revenue when compared to the same period of the previous year and an $10.5 million decrease in interest, royalties and fees earned on finance receivables that were paid off in 2022.

Current wording

Revenues increased to $45.0 million for the year ended December 31, 2024 from $37.8 million for the year ended December 31, 2023. The $7.2 million increase in revenue for the year ended December 31, 2024 consisted of a $4.8 million increase in Finance Receivables segment revenue and a $2.4 million increase in Pharmaceutical Development segment revenue. The $4.8 million increase in Finance Receivables segment revenue was primarily due to a $8.2 million increase in interest and fees earned due to funding new and existing loans offset by $2.5 million decrease in interest, fees and royalties earned on finance receivables that were paid off during the period. The increase in the Pharmaceutical Development segment was primarily due to the strategic partner collaboration agreement.

Previous wording

Our allowance for credit losses is established through charges or credits to income in the form of the provision in order to bring our allowance for credit losses for loans and unfunded commitments to a level deemed appropriate by management. We recognized Allowance for credit loss expense of $1.9 million and $3.5 million during the years ended December 31, 2023 and 2022, respectively (please refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 3 of the notes to the consolidated financial statements for further information on the allowance for credit losses).

Current wording

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 $12.8 million and $1.9 million for the years ended December 31, 2024 and 2023, respectively. Most of the change was related to a $8.1 million impairment on the Trio loan and $2.2 million impairment on the Exeevo loan that were included within the provision for credit losses during the year ended December 31, 2024.

Previous wording

We recognized a $8.4 million impairment charge during the year ended December 31, 2023. As part of the Company’s annual goodwill impairment analysis, the Company elected to bypass the qualitative goodwill impairment assessment and proceed directly with a quantitative assessment. The goodwill impairment test concluded that the fair value of the Company’s Pharmaceutical Development reporting unit did not exceed the carrying amount and the Company recognized an impairment charge of $8.4 million and reduced the goodwill balance to $0. Refer to Note 2 for further information.

Current wording

We recognized a $8.4 million impairment charge during the year ended December 31, 2023. As part of the Company's annual goodwill impairment analysis, the Company elected to bypass the qualitative goodwill impairment assessment and proceed directly with a quantitative assessment. The goodwill impairment test concluded that the fair value of the Company's Pharmaceutical Development reporting unit did not exceed the carrying amount and the Company recognized an impairment.

Previous wording

Interest expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027 (“Notes”), unused line of credit and maintenance fees, as well as amortization of debt issuance costs. Interest expense increased to $1.8 million for the year ended December 31, 2023 from $0.3 million for the year ended December 31, 2022. This increase in interest expense was mainly due to issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023. Additionally, during the year ended December 31, 2023 there was acceleration of debt issuance costs related to the Prior Credit Agreement with Cadence Bank, as well as interest expense incurred on both the Prior Credit Agreement and the new Credit Agreement with First Horizon Bank. See Note 6 for further information on the Notes, new Credit Agreement, and Prior Credit Agreement.

Current wording

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 increased to $4.7 million for year ended December 31, 2024 from $1.8 million for the year ended December 31, 2023. The $2.9 million increase in interest expense was mainly due to issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023.

Previous wording

Pharmaceutical manufacturing, research and development expense decreased from $7.0 million for the year ended December 31, 2022 to $3.4 million for the year ended December 31, 2023. The $3.6 million decrease was primarily due to a reduction in headcount, as well as a reduction in research and development and clinical trial expenditures.

Current wording

Pharmaceutical manufacturing, research and development expense decreased from $3.4 million for the year ended December 31, 2023 to $2.2 million for the year ended December 31, 2024. The $1.2 million decrease was primarily due to a reduction in research and development and clinical trial expenditures related to cancelled projects during the period.

Previous wording

We recognized a $6.3 million gain from the change in fair value of acquisition-related contingent consideration during the year ended December 31, 2023 and recognized a $5.2 million loss in 2022. The contingent consideration is the earnout related to the 2019 acquisition of Enteris and sharing of certain milestone and royalties due to Enteris pursuant to the License Agreement with Cara for oral formulation rights to Enteris' Peptelligence® technology to develop and commercialize Oral KORSUVA™ in any indication worldwide, excluding South Korea and Japan (please refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 7 of the notes to the consolidated financial statements for further information on contingent consideration). The carrying amount of the liability may fluctuate significantly, and actual amounts paid may be materially different from the estimated value of the liability.

Current wording

We recognized gains of $4.9 million and $6.3 million from the change in fair value of acquisition-related contingent consideration during the years ended December 31, 2024 and 2023, respectively. The contingent consideration is the earnout related to the 2019 acquisition of Enteris and sharing of certain milestone and royalties due to Enteris pursuant to a license agreement ("License Agreement") with Cara Therapeutics, Inc. ("Cara") for oral formulation rights to Enteris' technology to develop and commercialize Oral KORSUVA™ in any indication worldwide, excluding South Korea and Japan. 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.

Previous wording

Depreciation and amortization expense for the year ended December 31, 2023 and 2022 was $2.6 million. Amortization expense is aligned with the expected future cash flows of the intangible assets.

Current wording

The $1.2 million decrease in depreciation and amortization expense for the year ended December 31, 2024 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 year. Amortization expense is aligned with the expected future cash flows of the intangible assets. See Note 3 for more information on the impairment of the Cara license.

Previous wording

General and administrative expenses consist primarily of compensation, including stock-based compensation and related costs for management, staff and Board; legal and audit expenses; and corporate governance expenses. General and administrative expenses decreased to $11.2 million for the year ended December 31, 2023 from $13.0 million for the year ended December 31, 2022. The $1.8 million decrease was primarily driven by a one-time severance payment of $1.1 million paid to the former CEO during the three months ended September 30, 2022; a $0.8 million decrease in one-time professional fees and other expense related to corporate strategic planning; and a net $0.5 million decrease in Pharmaceutical Development segment operational expenses due to a reduction in headcount and business development expense. The decrease was partially offset by a $0.6 million increase in salaries and wages for the Finance Receivables segment due to additional headcount and annual pay increases.

Current wording

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff and Board; legal and audit expenses; and corporate governance expenses. General and administrative expenses increased to $11.5 million for the year ended December 31, 2024 from $11.2 million for the year ended December 31, 2023.

Previous wording

As of December 31, 2023, we had $5.2 million in cash, cash equivalents and restricted cash, compared to $6.2 million as of December 31, 2022. The primary driver of the $0.9 million decrease in our cash balance was $55.8 million of interest, fees, principal and royalty payments received on our finance receivables, a $9.9 million net increase on our credit facility, a $0.9 million increase in Enteris revenue receipts, and $33.0 million cash received from the issuance of Senior Notes. The increase in cash and cash equivalents was offset by $74.1 million of investment funding, net of deferred fees and origination expenses; payroll, accounts payable and credit facility closing costs of $18.4 million; and $6.3 million to repurchase shares of the Company’s common stock in the open market.

Current wording

As of December 31, 2024, we had $5.9 million in cash and cash equivalents, compared to $4.5 million as of December 31, 2023. The primary driver of the$1.4 million increase in our cash balance was $88.2 million of interest, fees, principal and royalty payments received on our finance receivables and $5.0 million of cash receipts from pharmaceutical development revenues. The increase in cash and cash equivalents was partially offset by $64.1 million of investment funding, net of deferred fees and origination expenses, a net credit facility payment of $6.2 million, a payroll and benefits expense of $5.4 million, $10.8 million of payments on accounts payable, and share repurchases of $6.0 million.

Previous wording

We entered into a new $45.0 million revolving credit facility in June 2023 with First Horizon Bank. The Credit Agreement provides for one or more incremental increases not to exceed $80.0 million, subject to the consent of the Agent and each Lender, at any time prior to the Commitment Termination Date. On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million. As of December 31, 2023, $12.4 million was outstanding under the new Credit Agreement, and $47.7 million was available for borrowing.

Current wording

We entered into a $45.0 million revolving credit facility in June 2023 with First Horizon Bank. The Credit Agreement provides for one or more incremental increases not to exceed $80.0 million, subject to the consent of the Agent and each Lender, at any time prior to the Commitment Termination Date. On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million. As of December 31, 2024, there was $6.2 million outstanding amount under the new Credit Agreement, and $35.6 million was available for borrowing. The $60.0 million Credit Agreement contains a $5.0 million liquidity covenant, bringing the total amount available for borrowing to $35.6 million.

Previous wording

On October 3, 2023, the Company completed a registered underwritten public offering of $30.0 million of the Notes. On October 27, 2023, the underwriters exercised their option to purchase an additional approximately $3.0 million in aggregate principal amount of the Notes. The Notes will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00 percent per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year and at maturity, commencing on December 31, 2023. The Company received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6 million.

Current wording

On October 3, 2023, the Company completed a registered underwritten public offering of $30.0 million of the Notes. On October 27, 2023, the underwriters exercised their option to purchase an additional approximately $3.0 million in aggregate principal amount of the Notes. The Notes will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00% per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year and at maturity, commencing on December 31, 2023. The Company received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6 million. See Note 8 for more information.

Previous wording

Our ability to generate cash in the future depends primarily upon our success in implementing our Finance Receivable segment business model of generating income by providing capital to a broad range of life science companies, institutions and inventors, as well as the success of our Pharmaceutical Development segment. We generate income primarily from four sources:

Current wording

Our ability to generate cash in the future depends primarily upon our success in implementing our Finance Receivables business model of generating income by providing capital to a broad range of life science companies, institutions and inventors, as well as the success of our Pharmaceutical Development segment. We generate income primarily from four sources:

Previous wording

As of December 31, 2023, our finance receivables portfolio contains $274.5 million of net finance receivables and $48,000 of marketable investments. We expect these assets to generate positive cash flows in 2024. We continuously monitor the short and long-term financial position of our finance receivables portfolio. In addition, the majority of our finance receivables portfolio are debt instruments that carry floating interest rates. Changes in interest rates, including the levels of the underlying reference rates may affect the interest income for debt instruments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

Current wording

As of December 31, 2024, our finance receivables portfolio contains $277.8 million of net finance receivables and $0.6 million of marketable investments. We expect these assets to generate positive cash flows in 2025. We continuously monitor the short and long-term financial position of our finance receivables portfolio. In addition, the majority of our finance receivables portfolio are debt instruments that carry floating interest rates. Changes in interest rates, including the levels of the underlying reference rates may affect the interest income for debt instruments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

Previous wording

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 2023. We do not assume any near-term repayments from borrowers, and as a result, no assurances can be given that actual results would not differ materially from the statement above.

Current wording

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. We anticipate near-term repayments from borrowers, however, no assurances can be given that actual results would not differ materially from the statement above.

Previous wording

As of December 31, 2023, we had $5.0 million of unfunded commitments. Please refer to Part II, Item 8,Financial Statements, Note 7 of the notes to the consolidated financial statements for further information regarding the Company’s commitments and contingencies.

Current wording

As of December 31, 2024, we had $5.8 million in unfunded commitments. Please refer to Item 1., Financial Statements, Note 9 of the notes to the consolidated financial statements for further information regarding the Company’s commitments and contingencies.