Attached files

file filename
EX-31.01 - CERTIFICATION - SWK Holdings Corpe00222_ex31-1.htm
EX-31.02 - CERTIFICATION - SWK Holdings Corpe00222_ex31-2.htm
EX-32.01 - CERTIFICATION PURSUANT TO - SWK Holdings Corpe00222_ex32-1.htm
EX-32.2 - SWK Holdings Corpe00222_ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - SWK Holdings CorpFinancial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2015

 

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 77-0435679
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
   
14755 Preston Road, Suite 105
Dallas, TX 75254
75254
(Address of Principal Executive Offices) (Zip Code)

 

(972) 687-7250
(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value per share

(Title of class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x YES    o   NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  YES    o   NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large Accelerated Filer  o Accelerated Filer  o Non-Accelerated Filer  o Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  YES    x   NO

 

As of May 8, 2015, there were 131,135,092 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 

 
 

SWK Holdings Corporation

Form 10-Q

Quarter Ended March 31, 2015

 

Table of Contents

 

PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 4
     
  Unaudited Condensed Consolidated Balance Sheets—March 31, 2015 and December 31, 2014 4
     
  Unaudited Condensed Consolidated Statements of Income—Three Months Ended March 31, 2015 and 2014 5
     
  Unaudited Condensed Consolidated Statements of Comprehensive Income —Three Months Ended March 31, 2015 and 2014 6
     
  Unaudited Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2015 and 2014 7
     
  Notes to the Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk   29
     
Item 4 Controls and Procedures   29
     
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings   29
     
Item 1A.   Risk Factors   29
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   30
     
Item 3. Defaults Upon Senior Securities   30
     
Item 4. Mine Safety Disclosures   30
     
Item 5. Other Information   30
     
Item 6. Exhibits   30
     
  Signatures   31
     
  Certifications  

 

 
 

FORWARD-LOOKING STATEMENTS

 

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions, and include, but are not limited to, statements under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Outlook . Words such as “anticipate,” “believe,” “estimate,” “expects,” “intend,” “plan,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially (both favorable and unfavorably) from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Risk Factors” and elsewhere in this report, and those described from time to time in our past and future reports filed with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2014. Forward-looking statements that were believed to be true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

 
 

PART I. FINANCIAL INFORMATION

 

ITEM I.      FINANCIAL STATEMENTS

 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

  

March 31,

2015

 

December 31,

2014

ASSETS          
           
Cash and cash equivalents  $59,487   $58,728 
Accounts receivable   1,139    1,053 
Prepaid expenses and other assets   168    32 
Finance receivables   95,456    93,347 
Marketable investments   6,349    4,849 
Investment in unconsolidated entities   8,740    9,044 
Deferred tax asset   18,600    20,106 
Warrant assets   1,406    679 
Debt issuance costs   —     381 
Total assets  $191,345   $188,219 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Accounts payable and accrued liabilities  $1,545   $864 
Warrant liability   586    421 
Total liabilities   2,131    1,285 
           
Commitments and contingencies          
           
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; 131,135,092  and 131,058,303 shares issued and outstanding at March 31, 2015, and December 31, 2014, respectively   131    131 
Additional paid-in capital   4,432,551    4,432,364 
Accumulated deficit   (4,248,172)   (4,250,428)
Total SWK Holdings Corporation stockholders’ equity   184,510    182,067 
Non-controlling interests in consolidated entities   4,704    4,867 
Total stockholders’ equity   189,214    186,934 
Total liabilities and stockholders’ equity  $191,345   $188,219 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4
 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

   Three Months Ended March 31,
   2015  2014
       
Revenues:          
Finance receivable interest income, including fees  $4,145   $2,031 
Marketable investments interest income   90    91 
Income related to investments in unconsolidated entities   1,551    1,503 
Other   15    43 
Total Revenues   5,801    3,668 
Costs and expenses:          
Interest expense   381    189 
General and administrative   1,218    669 
Total costs and expenses   1,599    858 
Other income:          
Unrealized net gain on derivatives   371    154 
Income before provision for income tax   4,573    2,964 
Provision for income tax   1,506    706 
Consolidated net income   3,067    2,258 
Net income attributable to non-controlling interests   811    801 
           
Net income attributable to SWK Holdings Corporation Stockholders  $2,256   $1,457 
           
Net income per share attributable to SWK Holdings Corporation Stockholders          
Basic  $0.02   $0.04 
Diluted  $0.02   $0.04 
Weighted Average Shares          
Basic   129,964    41,462 
Diluted   130,046    41,530 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5
 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

 

   Three Months Ended March 31,
   2015  2014
       
Net income  $3,067   $2,258 
Other comprehensive income, net of tax:          
Unrealized gains on investment in securities          
Unrealized holding gains arising during period   —      —   
           
Less: reclassification adjustment for gains included in net income   —      —   
Total other comprehensive income   —      —   
Comprehensive income   3,067    2,258 
           
Comprehensive income attributable to non-controlling interests   811    801 
           
Comprehensive income attributable to SWK Holdings Corporation Stockholders  $2,256   $1,457 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6
 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

  

Three Months Ended

March 31,

   2015  2014
       
Cash flows from operating activities:          
Net income  $3,067   $2,258 
Adjustments to reconcile net income to net cash provided by operating activities:          
Income from investments in unconsolidated entities   (1,551)   (1,503)
Deferred income taxes   1,506    706 
Interest income in excess of cash collected   (33)   (431)
Loan discount amortization and fee accretion   (344)   (72)
Change in fair value of warrants   (371)   (154)
Stock-based compensation   197    76 
Debt issuance cost amortization   381    35 
Property and equipment depreciation   1    —   
Changes in operating assets and liabilities:          
Accounts receivable   (86)   172 
Prepaid expenses and other assets   (87)   (273)
Accounts payable and accrued liabilities   681    443 
Net cash provided by operating activities   3,361    1,257 
           
Cash flows from investing activities:          
Net increase in finance receivables   (3,423)   (11,975)
Cash distributions from investments in unconsolidated entities   1,855    1,976 
Purchases of property and equipment   (50)   —   
Net cash used in investing activities   (1,618)   (9,999)
           
Cash flows from financing activities:          
Proceeds from loan credit agreement   —      6,000 
Costs of common stock issuance   (10)   —   
Distributions to non-controlling interests   (974)   (1,055)
Net cash provided by (used in) financing activities   (984)   4,945 
           
Net increase (decrease) in cash and cash equivalents   759    (3,797)
Cash and cash equivalents at beginning of period   58,728    7,664 
Cash and cash equivalents at end of period  $59,487   $3,867 

 

Supplementary noncash flow activity:

 

Consideration (notes and preferred stock) received in connection with loan repayment  $8,400    —   
Warrants received in conjunction with purchase of financial receivables  $191   $99 

  

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7
 

SWK HOLDINGS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. SWK Holdings Corporation and Summary of Significant Accounting Policies

 

Nature of Operations

 

SWK Holdings Corporation (the “Company,” “SWK,” “we,” “us,” or “our”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, the Company commenced its strategy of building a specialty finance and asset management business. The Company’s strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. The Company has initially focused on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. The Company has been deploying its assets to earn interest, fees, and other income pursuant to this strategy, and the Company continues to identify and review financing and similar opportunities on an ongoing basis.

 

As of March 31, 2015, the Company had executed 14 transactions under its specialty finance strategy, funding approximately $124,000,000 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, purchased royalties generated by sales of life science products and related intellectual property and an unconsolidated equity investment in a company which retains the marketing authorization rights to a pharmaceutical product.

 

The Company is headquartered in Dallas, Texas.

 

Basis of Presentation

 

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  The unaudited condensed 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 entity and do not have the substantial ability to remove the Company. The Company has reviewed each of the underlying agreements to determine if it has effective control. If circumstances changed and it was determined this control did not exist, this investment would be recorded using the equity method of accounting. Although this would change individual line items within the Company’s condensed consolidated financial statements, it would have no effect on our net income and/or total stockholders’ equity attributable to the Company. The Company operates in one operating segment with a single management team that reports to the chief executive officer, who is the Company’s chief operating decision maker.

 

8
 

Unaudited Interim Financial Information

 

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2015. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 27, 2015.

 

Use of Estimates

 

The preparation of the Company’s unaudited condensed 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 unaudited condensed 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, impairment of financing receivables and long-lived assets, valuation of warrants, 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 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 us to change those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, and economic downturn, 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 condensed 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.

 

Reclassification

 

Certain amounts have been reclassified in the presentation of the financial statements as of December 31, 2014 and for the three months ended March 31, 2014 to be consistent with the presentation in the financial statements for the three months ended March 31, 2015. This reclassification had no impact on previously reported net loss, cash flow from operations or changes in stockholder deficit.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The tentative revised effective date for this ASU is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the impact of adopting this guidance.

 

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes changes to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period. The Company is currently evaluating the impact of adopting this guidance.

 

9
 

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, and amortization of those costs should be reported as interest expense.

 

This ASU is effective for financial statements issued for annual and interim periods beginning after December 15, 2015, and early adoption is permitted for financial statements that have not been previously issued. The new guidance should be applied on a retrospective basis for each period presented in the balance sheet. The Company is currently evaluating the impact of adopting this guidance.

 

In April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which provides guidance about whether a cloud computing arrangement includes a software license. The customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

 

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):

 

   Three Months Ended
   March 31, 2015  March 31, 2014
Numerator:          
Net income attributable to SWK Holdings Corporation Shareholders  $2,256   $1,457 
Denominator:          
Weighted-average shares outstanding   129,964    41,462 
Effect of dilutive securities   82    68 
Weighted-average diluted shares   130,046    41,530 
Basic earnings per share  $0.02   $0.04 
Diluted earnings per share  $0.02   $0.04 

 

For the three month period ended March 31, 2015, and 2014, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately 4,175,000 and 4,175,000 shares, respectively, have been excluded from the calculation of diluted net income per share as all such securities were anti-dilutive.

 

Note 3. 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.

 

10
 

The carrying value of finance receivables are as follows (in thousands):

 

   March 31, 2015  December 31, 2014
Portfolio          
           
Term Loans  $82,645   $80,450 
Royalty Purchases   12,811    12,897 
Total   95,456    93,347 

 

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 each finance receivable for impairment. Currently there are no finance receivables considered impaired and no corresponding allowance for credit losses for impaired loans.

 

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. 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 and collectability of remaining principal and interest is no longer doubtful. In certain circumstances, the Company may place a finance receivable on nonaccrual status but conclude it is not impaired.

 

Receivables associated with royalty stream purchases would be considered to be impaired when it is probable that the Company will be unable to collect the book value of the remaining investment based upon adverse changes in the estimated underlying royalty stream.

 

When the Company identifies a finance receivable as impaired, it measures the impairment based on the present value of expected future cash flows, discounted at the receivable’s effective interest rate. If it is determined that the value of an impaired receivable is less than the recorded investment, the Company would recognize impairment with a charge to the allowance for credit losses. When the value of the impaired receivable is calculated by discounting expected cash flows, interest income would be recognized using the receivable’s effective interest rate over the remaining life of the receivable.

 

The Company would individually develop the allowance for credit losses for any identified impaired loans if any existed. In developing the allowance for credit losses, the Company would consider, among other things, the following credit quality indicators:

 

• business characteristics and financial conditions of obligors;

• current economic conditions and trends;

• actual charge-off experience;

• current delinquency levels;

• value of underlying collateral and guarantees;

• regulatory environment; and

• any other relevant factors predicting investment recovery.

 

Non-Accrual Loan

 

The Company had one non-accrual loan at March 31, 2015, for approximately $6,650,000. The Company measured the loan for impairment as of March 31, 2015, by comparing the outstanding loan balance to the fair market value of the collateral and determined that the fair market value of the collateral exceeded the outstanding balance. As a result, the Company was not required to record any impairment charge on this loan as of March 31, 2015. As of March 31, 2014, the Company did not have any non-performing assets.

  

Note 4. Marketable Investments

 

Investment in securities at March 31, 2015, and December 31, 2014, consist of the following (in thousands):

 

   March 31,
2015
  December 31,
2014
Fixed income  $3,119   $3,119 
Equity securities   3,230    1,730 
Total  $6,349   $4,849 

 

11
 

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale securities as of March 31, 2015, and December 31, 2014, are as follows (in thousands):

 

   Amortized Cost  Gross Unrealized Gains  Gross Unrealized Loss  Fair Value
Available for sale securities:                    
Corporate debt securities  $3,119   $—     $—     $3,119 
   $3,119   $—     $—     $3,119 

 

During the three months ended March 31, 2015, and the year ended December 31, 2014, the Company had no sales of available-for-sale securities and no securities have been considered impaired.

 

Note 5. Variable Interest Entities

 

The Company consolidates the activities of VIEs of which we are the primary beneficiary. The primary beneficiary of a VIE is the variable interest holder possessing a controlling financial interest through (i) its power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) its obligation to absorb losses or its right to receive benefits from the VIE that could potentially be significant to the VIE. In order to determine whether the Company owns a variable interest in a VIE, the Company performs qualitative analysis of the entity’s design, organizational structure, primary decision makers and relevant agreements.

 

Consolidated VIE

 

SWK HP Holdings LP (“SWK HP”) 

 

SWK HP was formed in December 2012 to acquire a limited partnership interest in Holmdel Pharmaceuticals LP (“Holmdel”).   Holmdel acquired the U.S. marketing authorization rights to a beta blocker pharmaceutical product indicated for the treatment of hypertension for a total purchase price of $13,000,000. The Company, through its wholly owned subsidiary SWK Holdings GP LLC (“SWK Holdings GP”) acquired a direct general partnership interest in SWK HP, which in turn acquired a limited partnership interest in Holmdel. The total investment in SWK HP of $13,000,000 included $6,000,000 provided by SWK Holdings GP and $7,000,000 provided by non-controlling interests.   Subject to customary limited partner protections afforded the investors by the terms of the limited partnership agreement, the Company maintains voting and managerial control of SWK HP and therefore includes it in its consolidated financial statements.

 

SWK HP is considered a VIE due to the lack of voting or similar decision-making rights by its equity holders regarding activities that have a significant effect on the economic success of the partnership. The Company’s ownership in SWK HP constitutes variable interests. The Company has determined that it is the primary beneficiary of SWK HP as (i) the Company has the power to direct the activities that most significantly impact the economic performance of SWK HP via its obligations to perform under the partnership agreement, and (ii) the Company has the right to receive residual returns that could potentially be significant to SWK HP. As a result, the Company consolidates SWK HP in its financial statements and the limited partner interests of SWK HP owned by third parties are reflected as a non-controlling interest in the Company’s unaudited condensed consolidated balance sheets.

 

Unconsolidated VIEs

 

Holmdel  

 

SWK HP has significant influence over the decisions made by Holmdel. SWK HP will receive quarterly distributions of cash flow generated by the pharmaceutical product according to a tiered scale that is subject to certain cash on cash returns received by SWK HP. Until SWK HP received a 1x cash on cash return on its interest in Holmdel, which occurred in February 2015, SWK HP received approximately 84% of the pharmaceutical product’s cash flow. As the cash on cash multiple received by SWK HP Holdings LP increases, SWK HP’s interest in the cash flow generated by the pharmaceutical product decreases, but in no instance will it decline below 39%. Holmdel is considered a VIE because SWK HP’s control over the partnership is disproportionate to its economic interest. This VIE remains unconsolidated as the power to direct the activities of the partnership is not held by the Company. The Company is using the equity method to account for this investment.  SWK HP’s current ownership in Holmdel approximates 70%.  The Company accounts for its interest in the entity based on the timing of quarterly distributions, which are paid on a quarter lag basis. For the three months ended March 31, 2015, and 2014, the Company recognized $1,551,000 and $1,503,000, respectively, of equity method gains. The amount of equity method gains attributable to the non-controlling interests in SWK HP were $811,000 and $801,000 for the three months ended March 31, 2015, and 2014, respectively.

 

12
 

In addition, SWK HP received cash distributions totaling $1,855,000 during the three months ended March 31, 2015, of which $974,000 was subsequently paid to holders of the non-controlling interests in SWK HP. Changes in the carrying amount of the Company’s investment in Holmdel for the three months ended March 31, 2015, are as follows (in thousands):  

 

Balance at December 31, 2014  $9,044 
      
Add: Income from investments in unconsolidated entities   1,551 
      
Less: Cash distribution on investments in unconsolidated entities   (1,855)
      
Balance at March 31, 2015  $8,740 

 

The following table provides the financial statement information related to Holmdel for the comparative periods which SWK HP has reflected its share of Holmdel income in the Company’s consolidated statements of income:

 

   As of March 31,
2015
(in millions)
     Three months ended
March 31, 2015
(in millions)
  Three months ended
March 31, 2014
(in millions
)
             
 Assets   $11.9   Revenue  $2.4   $2.4 
 Liabilities   $2.4   Expenses  $0.4   $0.6 
 Equity   $9.5   Net income  $2.0   $1.8 

   

Note 6. Loan Credit Agreement with Related Party

 

On September 6, 2013, the Company entered into a credit facility with Double Black Diamond, L.P. (the “Lender”), an affiliate of, Carlson Capital, L.P. (“Carlson”). Funds affiliated with Carlson (collectively, the “Stockholder”) are holders of a majority of the Company’s common stock. The credit facility provides financing for the Company, primarily for the purchase of eligible investments. The facility matures on September 6, 2017, and provides that the loan shall accrue interest at the LIBOR rate plus a 6.50% margin. The principal is repayable in full at maturity. The facility works as a delayed draw credit facility with the Company having the ability to drawdown, as necessary, over the first 18 months (the “Draw Period”) up to $30,000,000, based on certain conditions. The credit facility provided for an initial $15,000,000 to be available at closing. The Draw Period expired on March 6, 2015, and as a result, as of March 31, 2015, the Company has no availability remaining on the facility. The Lender has received a security interest in basically all assets of the Company as collateral for the facility. In conjunction with the credit facility, the Company issued warrants to the Lender for 1,000,000 shares of the Company’s common stock at a strike price of $1.3875. The warrants have a price dilution mechanism that was triggered by the price that shares were sold in the Rights Offering in November 2014, and as a result, the strike price of the warrants was reduced to $1.348. In connection with the credit agreement, the Company, the Lender,the Stockholder and certain of the Stockholder’s affiliates, entered into a Voting Rights Agreement restricting the Stockholder’s and such affiliates’ voting rights under certain circumstances and providing the Stockholder and such affiliates a right of first offer on certain future share issuances, which Voting Rights Agreement was terminated on August 18, 2014, in connection with the sale of shares of common stock to the Stockholder.

 

13
 

Due to certain provisions within the warrant agreement, the warrants meet the definition of a derivative and do not qualify for a scope exception as it is not considered indexed in the Company’s stock. As such, the warrants with a value of $586,000 and $421,000 at March 31, 2015, and December 31, 2014, respectively, are reflected as a warrant liability in the unaudited condensed consolidated balance sheets. An unrealized loss of $165,000 and an unrealized gain of $42,000 were included in interest and other income (expense) in the unaudited condensed consolidated statements of income for the three months ended March 31, 2015, and 2014, respectively. The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

 

   March 31,
2015
  December 31,
2014
Dividend rate   0%   0%
Risk-free rate   1.4%   1.7%
Expected life (years)   5.4    5.7 
Expected volatility   32.6%   32.7%

 

During the three months ended March 31, 2015, the Company recognized interest expense totaling $381,000 consisting of debt issuance cost amortization. During the three months ended March 31, 2014, the Company recognized interest expense totaling $189,000, which included $153,000 interest due the lender and $36,000 of debt issuance cost amortization.

 

Note 7. Stockholders’ Equity

 

Stock Compensation Plans

 

The Company’s 1999 Stock Incentive Plan (the “1999 Stock Incentive Plan”), as successor to the 1997 Stock Option Plan (the “1997 Stock Option Plan”), provided for options to purchase shares of the Company’s common stock to be granted to employees, independent contractors, officers, and directors. The plan expired in July 2009. As a result of the termination of all employees on December 31, 2009, the stock options held by employees were cancelled on March 31, 2010.  The only remaining options outstanding as of March 31, 2014, under the 1999 Stock Incentive Plan are those held by some of the Company’s current directors.

 

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 Company’s Board of Directors (the “Board”) and have a term not greater than 10 years from the date of grant.

  

There were no options exercised in the three months ended March 31, 2015 or 2014.

 

The following table summarizes activities under option plans for the indicated periods:

 

   Options Outstanding
   Number of
Shares
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining Contractual
Term
(in years)
  Aggregate
Intrinsic
Value
Balances, December 31, 2014   3,670,000   $1.20    8.3   $1,109,200 
Options cancelled and retired         —      —             
Options exercised         —      —             
Options granted         —      —             
Balances, March 31, 2015   3,670,000    1.20    8.1    1,569,400 
                     
Options vested and exercisable and expected to be vested and exercisable at March 31, 2015   3,380,000   $1.20    8.1   $1,569,400 
Options vested and exercisable at March 31, 2015   545,000   $1.36    5.8   $305,650 

 

14
 

At March 31, 2015, there were no options available for grant under the 1999 Stock Incentive Plan, and the Company had no total unrecognized stock-based compensation expense under this Plan.  At March 31, 2015, there were 2.7 million shares reserved for equity awards under the 2010 Stock Incentive Plan and the Company had approximately $0.6 million of total unrecognized stock option expense, net of estimated forfeitures, which will be recognized over the weighted average remaining period of 2 years. 

 

The following table summarizes significant ranges of outstanding and exercisable options as of March 31, 2015:

 

    Options Outstanding, Vested and Exercisable
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
$0.70    20,000    4.3   $0.70    20,000   $0.70
 0.83    1,500,000    7.1    0.83    375,000     0.83
 1.24    20,000    3.3    1.24    20,000     1.24
 1.37    2,000,000    9.4    1.37    —       1.37
 2.67    20,000    2.3    2.67    20,000     2.67
 2.95    90,000    1.45    2.95    90,000     2.95
 3.50    20,000    1.9    3.50    20,000     3.50
Total    3,670,000    8.1   $1.20    545,000   $ 1.36

 

Employee stock-based compensation expense recognized for time-vesting options for the three months ended March 31, 2015, and 2014, 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 plans.

 

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.

 

The following table summarizes restricted stock activities under the equity incentive plans for the indicated periods:

 

   Restricted Shares Outstanding
   Number of Shares  Weighted Average Grant Date Fair Value
Balances, December 31, 2014   1,125,500   $0.31 
Shares cancelled and forfeited   —      —   
Shares vested   —      —   
Shares granted   —      —   
Balances, March 31, 2015   1,125,000   $0.31 

 

For restricted stock granted in 2014 and 2013 under the 2010 Stock Incentive Plan, the Company recognizes compensation expense in accordance with the fair value of such stock as determined on the grant date, amortized over the applicable derived service period using the graded amortization method. The fair value and derived service period of awards with market performance vesting was calculated using a lattice model and included adjustments to the fair value of the Company’s common stock resulting from the vesting conditions being based on the underlying stock price. Restricted shares of 1,125,000 are included in the Company’s shares outstanding as of March 31, 2015, but are not included in the computation of basic income per share as the shares are not yet earned by the recipients. The Company had no unrecognized stock based compensation expense, net of estimated forfeitures, related to restricted shares as of March 31, 2015.

 

During the three months ending March 31, 2015, the Board approved the following grants as compensation for Board services: (i) a grant of 33,660 shares of common stock as the pro-rated director compensation for the non-employee directors appointed on September 6, 2014; (ii) a grant 10,000 shares to each non-employee directors for services as a director for the period January 1, 2015 to March 31, 2015; and (iii) a grant of 32,595 shares of common stock in lieu of cash payments to the non-employee directors upon the voluntary election of such directors. The Company recorded approximately $107,000 in board compensation expense relating to the quarterly grant,

 

The stock-based compensation expense recognized by the Company for the three months ended March 31, 2015, and 2014 was $90,000 and $76,000, respectively.

 

15
 

Non-controlling Interests

 

As discussed in Note 5, SWK HP has a limited partnership interest in Holmdel.  Changes in the carrying amount of the non-controlling interest in the unaudited condensed consolidated balance sheet for the three months ended March 31, 2015, are as follows (in thousands):  

 

Balance at December 31, 2014  $4,867 
Add: Income attributable to non-controlling interests   811 
Less: Cash distribution to non-controlling interests   (974)
Balance at March 31, 2015  $4,704 

  

Note 8. 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 three months ended March 31, 2015, and 2014.

 

The fair value of equity method investments is not readily available nor have we estimated the fair value of these investments and disclosure is not required. The Company is not aware of any identified events or changes in circumstances that would have a significant adverse effect on the carrying value of any of our equity method investments included in our unaudited condensed consolidated balance sheets at March 31, 2015, or December 31, 2014.

 

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.

 

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.

 

Marketable Investments and Warrants 

 

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 bench mark 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.

 

16
 

Derivative securities

 

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 following table presents financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 (in thousands):

 

   Total Carrying Value in Consolidated Balance Sheet  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  $1,406   $—     $—     $1,406 
Available-for-sale securities   3,119    —      —      3,119 
                     
Financial Liabilities:                    
Warrant liability  $586   $—     $—     $586 

 

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 (in thousands):

 

   Total Carrying Value in Consolidated Balance Sheet  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  $679   $—     $—     $679 
Available-for-sale securities   3,119    —      —      3,119 
                     
Financial Liabilities:                    
Warrant liability  $421   $—     $—     $421 

 

 The changes on the value of the warrant assets during the three months ended March 31, 2015, were as follows (in thousands):

 

Balance at December 31, 2014  $679 
Issuances   191 
Change in fair value   536 
Balance at March 31, 2015  $1,406 

 

17
 

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 unaudited condensed consolidated balance sheets. The fair values for warrants outstanding, that have a readily determinable value, are measured using the Black-Scholes option pricing model. The following weighted average assumptions were used in the models to determine fair value:

 

   March 31, 2015  December 31, 2014
       
   Dividend rate   0.0%   0.0%
   Risk-free rate   1.4%   1.8%
   Expected life (years)   5.3    5.4 
   Expected volatility   93.9%   94.3%

 

The changes on the value of the warrant liability during the three months ended March 31, 2015, were as follows (in thousands):

 

Balance at December 31, 2014  $421 
Issuances   —   
Change in fair value   165 
Balance at March 31, 2015  $586 

 

For assets and liabilities measured on a non-recurring basis during the year, accounting guidance requires quantitative disclosures about the fair value measurements separately for each major category. There were no remeasured assets or liabilities at fair value on a non-recurring basis during the three months ended March 31, 2015, and 2014.

 

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 (in thousands):

  

March 31, 2015  Carry
Value
  Fair
Value
  Level 1  Level 2  Level 3
Financial Assets                         
Cash and cash equivalents  $59,487   $59,487   $59,487   $—     $—   
Finance receivables   95,456    95,456    —      —      95,456 
Marketable investments   6,349    6,349    —      —      6,349 
Other assets   1,406    1,406    —      —      1,406 
                          
Financial Liabilities                         
Warrant liability  $586   $586   $—     $—     $586 

 

December 31, 2014  Carry
Value
  Fair
Value
  Level 1  Level 2  Level 3
Financial Assets                         
Cash and cash equivalents  $58,728   $58,728   $58,728   $—     $   
Finance receivables   93,347    93,347    —      —      93,347 
Marketable investments   4,849    4,849    —      —      4,849 
Other assets   679    679    —      —      679 
                          
Financial Liabilities                         
Warrant liability  $421   $421   $—     $—     $421 

 

18
 

Note 9. Income Taxes

 

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company had no unrecognized tax benefits as of March 31, 2015, and December 31, 2014.

 

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 unaudited condensed consolidated statement of income for the period that the adjustment is determined to be required.

  

Deferred tax assets consist of the following (in thousands):

 

   March 31,  December 31,
   2015  2014
Deferred tax assets          
Credit carryforward  $2,660   $2,660 
Stock based compensation   470    470 
Other   271    271 
Net operating losses   145,007    146,513 
           
Gross deferred tax assets   148,408    149,914 
Valuation allowance   (129,808)   (129,808)
Net deferred tax assets  $18,600   $20,106 

 

The Tax Reform Act of 1986 limits the use of net operating loss 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.

 

A portion of deferred tax assets relating to net operating loss carryforwards (“NOLs”), pertains to NOLs resulting from tax deductions upon the exercise of employee stock options of approximately $1,900,000. When recognized, the tax benefit of these loss carryforwards will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax expense.

 

As of December 31, 2014, the Company had net operating loss carryforwards for federal income tax purposes of approximately $421,000,000. The federal net operating loss carryforwards, if not offset against future income, will expire by 2032, with the majority of such NOLs expiring by 2021.

 

Note 10. Subsequent Events

 

During April 2015, the Company entered into two new senior secured credit agreements for a total commitment of $12,500,000, of which $10,000,000 funded upon close. In conjunction with one of the credit agreements, the Company was issued a warrant to purchase 8,152,174 shares of common stock with an exercise price of $0.46 per share that may be exercised at any time prior to April 17, 2022. In addition, on April 6, 2015 the Company amended the credit agreement of one of its partner companies to allow the draw of the remaining $2.0 million available under the facility, of which $1.0 million was funded by the Company and $1.0 million by an unaffiliated third party. In connection with the amendment, the Company received warrants to purchase 1,351,351 shares of common stock. In addition, on May 7, 2015, SWK signed a commitment letter obligating the Company to fund up to $12 million in a loan transaction subject to the potential borrower fulfilling certain obligations.

 

19
 

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to and should be read in conjunction with, our audited consolidated financial statements, and the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2014 (“Annual Report”), as well as our unaudited condensed consolidated financial statements and the accompanying notes include in this report.

 

Overview

 

We were incorporated in July 1996 in California and reincorporated in Delaware in September 1999.

 

In July 2012, we commenced our new corporate strategy of building a specialty finance and asset management business. Our strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. We will initially focus on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. We expect to deploy our assets to earn interest, fees, and other income pursuant to this strategy, and we continue to identify and review financing and similar opportunities on an ongoing basis. In addition, through our wholly-owned subsidiary, SWK Advisors LLC, we provide non-discretionary investment advisory services to institutional clients in separately managed accounts to similarly invest in life science finance. SWK Advisors LLC is registered as an investment advisor with the Texas State Securities Board. We intend to fund transactions through our own working capital, as well as by building our asset management business to invest additional third party capital alongside our capital.

 

We have NOLs and believes that the ability to utilize these NOLs is an important and substantial asset. We believe that the foregoing business strategies can create value for its stockholders, and produce prospective taxable income (or the ability to generate capital gains) that might permit us to utilize the NOLs. We are unable to assure investors that it will find suitable financing opportunities or that it will be able to utilize its existing NOLs.

  

We intend to fill a niche that we believe is underserved in the sub-$50 million transaction size. Since many of our competitors that provide longer term, royalty-related financing options have much greater financial resources than us, they tend to not focus on transaction sizes below $50 million as it is generally inefficient for them to do so. In addition, we do not believe that a sufficient number of other companies offer similar types of long-term financing options to fill the demand of the sub-$50 million market. As such, we believe we face less competition from such longer term, royalty investors in transactions that are less than $50 million. 

 

We will 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 (together “life science”) and to tailor our financial solutions to the needs of our business partners. Our business partners are primarily engaged in selling products that directly or indirectly cure diseases and/or improve people’s or animals’ wellness, or they receive royalties paid on the sales of such products. For example, our biotechnology and pharmaceutical business partners manufacture medication that directly treat disease states, whereas our life science tools partners sell a wide variety of research instrumentation to help other companies conduct research into disease states.

 

Our investment objective is to maximize our portfolio total return and thus increase our net income and net operating income by generating income from three sources:

 

1. primarily owning or financing through debt investments, royalties generated by the sales of life science products and related intellectual property;

 

2. to a lesser extent, receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector; and

 

3. to a lesser extent, realize capital appreciation from equity-related investments in the life science sector.

 

In our portfolio we seek to achieve attractive risk-adjusted current yields and opportunities with the potential for equity-like returns.

 

The majority of our transactions are expected to be structured similarly to factoring transactions whereby we provide capital in exchange for an interest in an existing revenue stream. We do not anticipate providing capital in situations prior to the commercialization of a product. The existing revenue stream can take several forms, but is most commonly either a royalty derived from the sales of a life science product (1) from the marketing efforts of a third party, such as a royalty paid to an inventor on the sales of a medicine or (2) from the marketing efforts of a partner company, such as a medical device company that directly sells its own products. Our structured debt investments may include warrants or other features, giving us the potential to realize enhanced returns on a portion of our portfolio. Capital that we provide directly to our partners is generally used for growth and general working capital purposes, as well as for acquisitions or recapitalizations in select cases. We generally fund the full amount of transactions up to $20 million through our working capital.  

 

20
 

Our investment advisory agreements are currently non-discretionary and each client determines individually if it wants to participate in a transaction. Each account receives its pro rata allocation for a transaction based on which clients opt into a transaction, and each account receives its pro rata allocation of income produced by a transaction in which they participate. Clients pay us management and incentive fees according to a written investment advisory agreement, and we negotiate fees based on each client’s needs and the complexity of the client’s requirements. Fees paid by clients may differ depending upon the terms negotiated with each client and are paid directly by the client upon receipt of an invoice from us. We may seek to gain access to additional discretionary capital from similar investors in the future.

 

In circumstances where a transaction is greater than $20 million, we seek to syndicate amounts in excess of $20 million to our investment advisory clients. In addition, we may participate in transactions in excess of $10 million with investors other than our investment advisory clients. In those instances, we do not expect to earn investment advisory income from the participations of such investors.

 

We source our investment opportunities through a combination of our senior management’s proprietary relationships within the industry, outbound business development efforts and inbound inquiry from companies, institutions and inventors interested in learning about our capital financing alternatives. Our investment advisory clients generally do not originate investment opportunities for us.

 

As of May 8, 2015, we have executed 16 transactions, deploying approximately $134,600,000 across a variety of opportunities:

 

$16,250,000 in four transactions where we purchased or financed through a debt investment, royalties generated by the sales of life science products and related intellectual property;
   
$110,650,000 in ten transactions where we receive interest and other income by advancing capital in the form of secured debt backed by royalties paid by companies in the life science sector; and
   
$6,000,000 in one transaction where we acquired an indirect interest in the U.S. marketing authorization rights to a pharmaceutical product where we ultimately receive cash flow distributions from the product; and
   
$1,730,000 in one transaction where SWK purchased shares of preferred stock, which includes $230,000 in lieu of cash payment. In addition on February 13, 2015, SWK received an additional 1,079,138 shares of preferred stock.

 

In counting our transactions, we generally consider series of transactions with one partner company as a single transaction. In six of the transactions, we participated alongside other investors; our investment advisory clients co-invested in two of these transactions. The other ten transactions were completed solely by SWK. Subsequent to closing on one of the eight transactions, however, we syndicated a portion of the loan to an investment advisory client and then subsequently purchased it back, and subsequently partnered with another investor on a follow-on round for the same partner company.

 

21
 

The table below provides an overview of the transactions.

 

  Amount Funded by SWK as of
May 8, 2015
Total
Transaction Amount (including contingent consideration)
Material Terms Income Recognized during three months ended
March 31, 2015
 
Royalty Purchases and Financings
         
Besivance® $6,000,000 $16,000,000

·       Closed on April 2, 2013

·       Purchased a royalty stream paid on the net sales of Besivance®, an ophthalmic antibiotic marketed by Bausch & Lomb

·       SWK owns 40.3% of the royalty; Bess Royalty, LP owns 59.7%

·       Annual payments to be retained by the royalty seller once aggregate royalty payments received exceed certain thresholds

$180,000  in interest income
         
Tissue Regeneration Therapeutics (“TRT”) $3,250,000 $3,250,000

·       Closed on June 12, 2013

·       Purchased two royalty streams derived from the licensed use of TRT’s technology in the family cord banking services sector

·       Annual sharing payments due TRT once aggregate royalty payments received by SWK exceed the purchase price paid by SWK

$143,000 in interest income
         
Cambia® $4,000,000 $4,000,000

·       Closed on July 31, 2014

·       Purchased a royalty stream paid on the net sales of Cambia®, an NSAID marketed by Depomed, Inc. and Tribute Pharmaceuticals Canada, Inc.

·       Up to $0.5 million additional payable by us to the royalty seller, contingent upon aggregate net sales levels achieving certain thresholds

·       Annual payments to be retained by the royalty seller once aggregate royalty payments received exceed certain thresholds

$174,000 in  interest income
 
Senior Secured Debt
         
Royalty Financing $3,000,000 $100,000,000

·       Closed on July 9, 2013

·       Purchased senior secured notes (first lien) due November 2026

·       Pay interest quarterly at a 11.5% annual interest rate

·       Secured only by certain royalty and milestone payments associated with the sales of pharmaceutical products

$90,000 in interest income
         
Term Loans        
         
Tribute Pharmaceuticals Canada Inc. (“Tribute”) $14,000,000 $17,000,000

·       Entered into $8 million senior secured first lien loan on August 8, 2013, that matures on August 8, 2018.

·       Amended on October 1, 2014 to increase total commitment to $17 million from $8 million, with $6 million funded at the time of the amendment.

·       Repaid by tiered revenue interest that is charged on quarterly net sales and royalties

·       Bears interest at a floating interest rate, subject to a 13.5% per annum minimum. Earned an origination fee at closing, and entitled to an exit fee upon the maturity of the loan

·       Received 1,843,016 warrants to date, to purchase shares of Tribute common stock

$500,000 in interest income

 

22
 

 

  Amount Funded by SWK as of
May 8, 2015
Total
Transaction Amount (including contingent consideration)
Material Terms Income Recognized during three months ended
March 31, 2015
 
SynCardia Systems, Inc. (“SynCardia”) $4,000,000 $16,000,000

·       Entered into senior secured first lien credit facility loan on December 13, 2013, due on March 5, 2018; expansion of SynCardia’s existing facility

·       At the option of lenders, the term loan can be increased to $22 million; we have the right (not the obligation) to advance $1.5 million under the expansion facility

·       Repaid with principal due upon maturity and bears interest at a rate of 13.5% per annum

·       Entitled to an exit fee upon the maturity of the loan

·       Purchased an aggregate of 40,000 shares of SynCardia’s common stock, reflecting an ownership percentage in SynCardia of less than 0.05%

$169,000 in interest income
         
SynCardia 2nd Lien $10,000,000

·       Entered into senior secured second lien loan on December 13, 2013.

·       Repaid by a tiered revenue interest that is charged on quarterly net sales and royalties of, and any other income and revenue actually received by SynCardia

·       Repaid on February 13, 2015 for total consideration to SWK of $10.2 million comprised of $1.8 million of cash, $6.9 million of senior secured second lien convertible notes and 1,079,138 shares of Series F Preferred Stock

$955,000 in interest income
         

SynCardia 2nd Lien Convertible Note

$6,900,000

$6,900,000

·       New senior secured second lien convertible notes accrue interest at 10% per annum, interest paid in kind; notes are convertible into shares of SynCardia common stock at a 25% discount to the price of the initial public offering

$88,000 in interest income

 

23
 

 

  Amount Funded by SWK as of
May 8, 2015
Total
Transaction Amount (including contingent consideration)
Material Terms Income Recognized during three months ended
March 31, 2015
 
Private Dental Products Company (the “Dental Products Company”) $6,650,000 $6,650,000

·       On December 10, 2013, entered into senior secured first lien loan that matures on December 10, 2018

·       Repaid by a tiered revenue interest that is charged on quarterly net sales and royalties of the Dental Products Company.

·       Bears interest at a floating interest rate, subject to a 14% per annum minimum

·       Earned an arrangement fee of $60 thousand at closing and entitled to an exit fee upon the maturity of the loan

·       Executed an amendment to the loan to advance an additional $650 thousand on January 8, 2015.

$0 in interest income (in December  2014, Private Dental Products was under default under the terms of the credit agreement.  As a result, the loan has been classified as non-accrual.)
         
Parnell Pharmaceuticals Holdings Pty Ltd (“Parnell”) $25,000,000

·       Closed $10 million on January 23, 2014 and repaid on June 27, 2014.

·       Entered into senior secured first lien loan that was to mature on January 23, 2021

·       Repaid by a tiered revenue interest that is charged on quarterly net sales and royalties until such time as the lenders receive a 2.0x cash on cash return

·       Earned a $375 thousand origination fee at closing

$0
         
Response Genetics, Inc. (“Response”) $11,000,000 $12,000,000

·       Closed July 30, 2014, funding $8.5 million.

·       Entered into senior secured first lien loan that is to mature on July 30, 2020

·       Repaid by tiered revenue interest that is charged on quarterly net sales and royalties

·       Bears interest at a floating interest rate, subject to a 13.5% per annum minimum

·       Received warrants to purchase 681,090 shares of Response common stock

·       Amended on February 3, 2015 to allow the early draw of $1.5 million of the $3.5 million remaining under the credit agreement. In connection with the amendment, received warrants to purchase 576,923 shares of Response common stock

·       Amended on April 6, 2015 to allow draw of remaining $2 million, of which $1 million funded by SWK and another $1 million by unaffiliated third party. In connection with the amendment, received warrants to purchase 1,351,351 shares of Response common stock

$294,000 interest income

 

24
 

 

  Amount Funded by SWK as of
May 8, 2015
Total
Transaction Amount (including contingent consideration)
Material Terms Income Recognized during three months ended
March 31, 2015
 
ABT Molecular Imaging, Inc. (“ABT”) $10,000,000 $10,000,000

·       Entered into senior secured second lien loan on October 10, 2014, that is to mature on October 8, 2021

·       Repaid by a tiered revenue interest that is charged on quarterly net sales and royalties until such time as the lenders receive a 2.0x cash on cash return

·       Received warrants to purchase 5 million shares of ABT common stock

$415,000 in interest income
         
PDI, Inc. (“PDI”) $20,000,000 $20,000,000

·       Entered into senior secured first lien loan on October 31, 2014, that matures on October 31, 2020

·       Repaid by tiered revenue interest that is charged on quarterly net sales and royalties

·       Bears interest at a floating interest rate, subject to a 13.5% per annum minimum

·       Earned an origination fee at closing, and entitled to an exit fee upon the maturity of the loan

·       Beginning January 2017 until maturity, receive 1.25% royalty paid quarterly on net sales of molecular diagnostics products

$802,000 in interest income
         
Galil Medical, Inc. (“Galil”) $12,500,000 $12,500,000

·       Entered into senior secured first lien loan on December 9, 2014, that matures on December 9, 2019

·       Repaid by tiered revenue interest that is charged on quarterly net sales

·       Bears interest at a floating interest rate, subject to a 13.0% per annum minimum

·       Earned an origination fee at closing, and entitled to an exit fee upon the maturity of the loan

·       Received warrants to purchase 5,882,353 shares of Preferred Stock

$425,000 in interest income
         
DxTerity Diagnostics, Inc. (“DxTerity”) $5,000,000 $7,500,000

·       Entered into a senior secured loan on April 6, 2015, that matures on April 6, 2021

·     Repaid by tiered revenue interest that is charged on quarterly net sales

·     Bears interest at a floating interest rate, subject to a 13.5% per annum minimum

·     Earned an origination fee at closing, and entitled to an exit fee upon the maturity of the loan

 $0
         
Hooper Holmes, Inc. (“Hooper”) $5,000,000 $5,000,000

·       Entered into a senior secured loan on April 17, 2015, that matures on April 17, 2018

·       Repaid by tiered revenue interest that is charged on quarterly net sales

·       Bears interest at a floating interest rate, subject to a 15.0% per annum minimum

·       Earned an origination fee at closing, and entitled to an exit fee upon the maturity of the loan

·       Received warrants to purchase 8,152,174 common shares

 $0

 

25
 

 

  Amount Funded by SWK as of
May 8, 2015
Total
Transaction Amount (including contingent consideration)
Material Terms Income Recognized during three months ended
March 31, 2015
 
Other        
         
Holmdel $6,000,000 $13,000,000

·       Closed December 20, 2012

·       Holmdel acquired the U.S. marketing authorization rights to a beta blocker pharmaceutical product

·       SWK HP Holdings GP LLC, our direct wholly-owned subsidiary, acquired a direct general partnership interest in SWK HP

·       SWK HP acquired a direct limited partnership interest in Holmdel

·       We receive quarterly distributions based on a royalty paid on net sales of the product

$1.6 million, of equity method income, of which $811,000 was attributable to the non-controlling interest in SWK
         
SynCardia $3,230,000 Up to $24,000,000

·       Closed in two transactions

·       On September 15, 2015, acquired 1,244,511 shares of Series F Preferred Stock for cash

·       On February 13, 2015, 1,079,138 shares of Series F Preferred Stock as part of the repayment of the SynCardia 2nd lien as noted above

·       Preferred Stock automatically converts into common shares upon the closing of a public offering

·       Entitles holder to receive dividend at annual rate of 10%

No Income

 

Other than the $500,000 payable to the seller of the Cambia® royalty noted above, there are no other earn-out payments contracted to be paid by SWK to any of our partner companies. SWK has $5,500,000 of unfunded commitments on closed loan transactions.

 

Critical Accounting Policies and Estimates 

 

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 on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 27, 2015. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the three months ended March 31, 2015, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

26
 

Recent Accounting Pronouncements

 

Refer to Part I. Financial Information, Item I Financial Statements, Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements (the “Notes”) for a listing of recent accounting pronouncements.

 

Revenues

 

We generated revenues of $5.8 million for the three months ended March 31, 2015, driven primarily by $4.2 million in interest and fees earned on our finance receivables and marketable securities and $1.6 million in income related to our investment in an unconsolidated partnership. We generated revenues of $3.7 million for the three months ended March 31, 2014, driven primarily by $2.1 million in interest and fees earned on our finance receivables and marketable securities and $1.5 million in income related to our investment in an unconsolidated partnership.  Our portfolio consisted of 9 investments in 2014 compared to 14 investment in 2015, which is the primary reason for significant increase in our revenues.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff, Board of Directors, legal and audit expenses, and corporate governance. General and administrative expenses increased to $1.2 million for the three months ended March 31, 2015 from $0.7 million for the comparable period in 2014, due to increased income-based bonus expense and stock-based compensation expenses.

 

Interest and Other Income (Expense), Net

 

Interest and other income (expense), net was income of $2 thousand for the three months ended March 31, 2015, which consisted primarily of $371 thousand of fair market value gains on the warrant derivatives and $12 thousand interest income on cash balances essentially offset by interest expense of $381 thousand from debt issuance cost amortization. During the three months ended March 31, 2014, interest and other income (expense), net was an expense of $34 thousand which consisted primarily of interest expense of $189 thousand partially offset by $154 thousand of fair market value gains on the warrant derivatives.

  

Provision for Income Taxes

 

We have incurred net operating losses on a consolidated basis for all years from inception through 2012. Accordingly, we have historically recorded a valuation for the full amount of gross deferred tax assets, as the future realization of the tax benefit was not “currently more likely than not.” We believe that it is more likely than not that the Company will be able to realize approximately $18.6 million benefit of the U.S. federal and state deferred tax assets in the future.

 

As of December 31, 2014, we had NOLs for federal income tax purposes of approximately $421 million. The federal NOLs if not offset against future income, will expire by 2032, with the majority expiring by 2021.

 

Liquidity and Capital Resources

 

As of March 31, 2015, we had $59.5 million in cash and cash equivalents compared to $58.7 million in cash and cash equivalents as of December 31, 2014.

 

Primary Driver of Cash Flow

 

Our ability to generate cash in the future depends primarily upon our success in implementing our revised business model of generating income by providing capital to a broad range of life science companies, institutions and inventors. We generate income primarily from three sources:

 

  1. owning or financing through debt investments, royalties generated by the sales of life science products and related    intellectual property;

 

  2. receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector; and,

 

  3. to a lesser extent, realize capital appreciation from equity-related investments in the life science sector.

 

27
 

As of May 8, 2015, we have consummated 16 transactions under our new strategy and expect those assets to generate income greater than our expenses in 2015. We continue to evaluate multiple attractive opportunities that, if consummated, would similarly generate additional income. Since the timing of any investment is difficult to predict, we may not be able to generate positive cash flow above what our existing assets will produce in 2015. Given low current interest rates, we expect the interest rate that we receive on our cash will continue to be at a low rate and to not produce material income.

 

Operating Cash Flow

 

Net cash provided by operating activities was $3.4 million for the three months ended March 31, 2015 and consisted primarily of net income of $3.1 million and $0.5 million changes in net operating assets, partially offset by noncash adjustments of $0.2 million. The noncash adjustments were primarily attributable to $1.6 million from equity income on an investment in an unconsolidated entity, fair value gains on warrant derivatives of $0.4 million, and $0.4 million in loan discount amortization, fee accretion and interest income collected in excess of cash received, offset by $1.5 million deferred tax provision, $0.4 million debt issuance cost and $0.2 million in stock compensation expense. Net cash provided by operating activities was $1.3 million for the three months ended March 31, 2014, and consisted primarily of $2.3 million and $0.3 million changes in operating net assets, partially offset by noncash adjustments of $1.3 million. The noncash adjustments were primarily attributable to $1.5 million from equity income on an investment in an unconsolidated entity, $0.5 million in loan discount amortization, fee accretion and interest income collected in excess of cash received and fair value gains on warrant derivatives of $0.2 million, and, offset by $0.7 million deferred tax provision and $0.1 million in stock compensation expense.  

 

Investing Cash Flow

 

The Company’s investing activities provided negative cash flow of $1.6 million during the three months ended March 31, 2015, which primarily related to a net issuance of $3.4 million in finance receivables, offset by $1.9 million in cash distributions received from an investment in an unconsolidated entity. The Company’s investing activities provided negative cash flow of $10.0 million during the three months ended March 31, 2014, which primarily related to net issuance of $12.0 million in finance receivables, offset by $2.0 million in cash distributions received from an investment in an unconsolidated entity.    

 

Financing Cash Flow

 

The Company’s financing activities had negative cash flow of $1.0 million for the three months ended March 31, 2015, which consisted primarily of cash distributions to non-controlling interests. The Company’s financing activities had positive cash flow of $4.9 million for the three months ended March 31, 2014, which consisted of $6.0 million in loan proceeds from our credit agreement, offset by $1.1 million in cash distributions to non-controlling interests. 

   

Off-Balance-Sheet Arrangements

 

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

 

The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral becomes worthless. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Other than the $.5 million payable to the seller of the Cambria® royalty, there no other earn-out payments contracted to be paid by us to any of our partner companies. We have approximately $5.5 million of unfunded commitments on closed loan transactions. Subsequent to March 31, 2015, we have also signed a commitment letter obligating us to fund up to $12 million in a loan transaction subject to the potential borrower fulfilling certain obligations.

 

We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.

 

Outlook

 

Our corporate strategy is to provide capital to a broad range of life science companies, institutions and inventors in order to earn interest, fee, and other income pursuant to this strategy. As of May 8, 2015, we have consummated 16 transactions under our corporate strategy. We believe the income generated by these transactions will be more than our operational expenses, and we will begin to grow our book value going forward. We continue to evaluate multiple attractive opportunities that, if consummated, would similarly generate additional income. 

 

28
 

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

During the three months ended March 31, 2015, our cash and cash equivalents were deposited in accounts at well capitalized financial institutions. The fair value of our cash and cash equivalents at March 31, 2015, approximated its carrying value.

 

Investment and Interest Rate Risk

 

We are subject to financial market risks, including changes in interest rates. As we seek to provide capital to a broad range of life science companies, institutions and investors, our net investment income is dependent, in part, upon the difference between the rate at which we earn on our cash and cash equivalents and the rate at which we lend those funds to third parties. As a result, we would be subject to risks relating to changes in market interest rates. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations by providing capital at variable interest rates.  We constantly monitor our portfolio and position our portfolio to respond appropriately to a reduction in credit rating of any portfolio of products.

 

Inflation

 

We do not believe that inflation has had a significant impact on our revenues or operations.

 

ITEM 4.      CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

 

In connection with the preparation of this report, our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the three months ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

  

 

PART II: OTHER INFORMATION

 

ITEM 1.      LEGAL PROCEEDINGS

 

We are involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources.  Currently, we are not involved in any arbitration and/or other legal proceeding that we expect to have a material effect on our business, financial condition, results of operations and cash flows.

 

 

ITEM 1A.      RISK FACTORS.

 

Information regarding the Company’s risk factors appears in “Part I. – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 27, 2015. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

29
 

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

 

ITEM 4.      MINE SAFETY DISCLOSURES

 

Not Applicable.

 

 

ITEM 5.      OTHER INFORMATION.

 

None.

  

 

ITEM 6.      EXHIBITS

 

        Incorporated by Reference      

Exhibit

Number

  Exhibit Description   Form   File No.   Exhibit  

Filing

Date

 

Provided

Herewith

 
                           
31.01   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.                   X  
                           
                           
31.02   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.                   X  
                           
                           
32.01   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                   X  
                           
                           
32.02   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                   X  
                           
101.INS**   XBRL Instance                      
101.SCH**   XBRL Taxonomy Extension Schema                   X  
101.CAL**   XBRL Taxonomy Extension Calculation                   X  
101.DEF**   XBRL Taxonomy Extension Definition                   X  
101.LAB**   XBRL Taxonomy Extension Labels                   X  
101.PRE**   XBRL Taxonomy Extension Presentation                   X  

 

* These certifications accompany this Quarterly Report on Form 10-Q. They are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference in any filing of SWK Holdings Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

30
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

May 8, 2015

  SWK Holdings Corporation
   
  /s/ J. BRETT POPE
  J. Brett Pope
  Chief Executive Officer
  (Principal Executive Officer)
   
  /s/ CHARLES M. JACOBSON
  Charles M. Jacobson
  Chief Financial Officer
  (Principal Financial Officer)

 

31