SEC Info - SWK Holdings Corp. - ‘10-Q’ for 9/30/21

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		Alternative Formats (Word, et al.) Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Statements Item 1 Item 1A Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to the Unaudited Condensed Consolidated Financial Statements Other Information Part I. Financial Information Part Ii. Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Unaudited Condensed Consolidated Balance Sheets-September 30, 2021 and December 31, 2020 Unaudited Condensed Consolidated Statements of Cash Flows-Nine Months Ended September 30, 2021 and 2020 Unaudited Condensed Consolidated Statements of Income-Three and Nine Months Ended September 30, 2021 and 2020 Unaudited Condensed Consolidated Statements of Stockholders' Equity-Three and Nine Months Ended September 30, 2021 and 2020 Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Part I. Financial Information
"	Item 1
"	Financial Statements
"	Unaudited Condensed Consolidated Balance Sheets-September 30, 2021 and December 31, 2020
"	Unaudited Condensed Consolidated Statements of Income-Three and Nine Months Ended September 30, 2021 and 2020
"	Unaudited Condensed Consolidated Statements of Stockholders' Equity-Three and Nine Months Ended September 30, 2021 and 2020
"	Unaudited Condensed Consolidated Statements of Cash Flows-Nine Months Ended September 30, 2021 and 2020
"	Notes to the Unaudited Condensed Consolidated Financial Statements
"	Item 2
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3
"	Quantitative and Qualitative Disclosures About Market Risk
"	Item 4
"	Controls and Procedures
"	Part Ii. Other Information
"	Legal Proceedings
"	Item 1A
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Item 5
"	Other Information
"	Item 6
"	Exhibits
"	Signatures

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

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

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 i Yes o NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). x i Yes o NO

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of November 8, 2021, there were i 12,809,438 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

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 heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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 favorably 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 Part II, Item 1A, “Risk Factors,” and elsewhere in this report. 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.

See accompanying notes to the unaudited condensed consolidated financial statements.

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, 2020 (“Annual Report”), as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this report.

We are subject to risks related to public health crises such as the global pandemic associated with COVID-19. Our Pharmaceutical Development segment has seen a reduction in its productivity as well as delays in receiving some of its needed supplies as a direct result of the pandemic and the impact on key vendors. This slow-down is likely to continue in the near term until such time as certain restrictions that have been imposed on us and our suppliers are lifted. Such events may result in business disruption and reduced revenues, any of which could materially affect our business, financial condition and results of operations.

Please refer to Part II, Item 1A, Risk Factors, as well as the Risk Factors in our Annual Report, for additional information on risk factors related to the pandemic or other risks that could impact our business and results of operations.

On May 17, 2021, we issued a press release announcing the formation by our Board of Directors (“Board”) of a Strategic Review Committee (“SRC”) to identify, review and explore strategic alternatives with a view to enhancing stockholder value. With its advisors, the SRC completed a comprehensive review of strategic alternatives for each segment of the Company. On November 1, 2021, we issued a press release announcing that the Board approved a streamlined go-forward business plan and has begun implementing several new measures in light of our current governance structure. The goal of these measures is to improve our strategic focus, growth profile, and capital allocation. The Board believes these measures will allow us to generate long-term value for stockholders.

As overseers of risk and stewards of long-term enterprise value, our management and Board play a vital role in assessing, identifying and understanding the potential impact and related risks of environmental, social and governance (“ESG”) issues on the organization’s operating model. Our Board and management are committed to identifying those ESG issues most likely to impact business operations and growth by focusing our investment strategy around supporting innovative, growth-oriented companies in the life sciences industry that maximize both social and investment value.

Among the ESG issues we support within the Company, we are committed to recruiting, motivating and developing a diversity of talent. We promote and foster a company culture where every voice is welcome, heard and respected, regardless of age, gender, race, religion, sexual orientation, physical conditions, cultural background or country of origin.

The nature of our business supports environmental sustainability by being mindful of products we and our partners use in our businesses. We promote recycling to reduce landfill, and we offer our employees a hybrid work model, which allows employees the flexibility to work remotely, thereby reducing the carbon output from commuting in cars or buses.

We have organized our operations into two segments: Finance Receivables and Pharmaceutical Development. These segments reflect the way the Company evaluates it business performance and manages its operations. Please refer to Item 1. Financial Statements, Note 10 of the notes to the unaudited condensed consolidated financial statements for further information regarding segment information.

In our Finance Receivables segment, we evaluate and invest in a broad range of healthcare related companies and products with innovative intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical industries (together “life science”) by tailoring financial solutions to the needs of our business partners.

Our investment objective is to maximize our portfolio total return and thus increase our net income and book value by generating income from three sources: (1) primarily owning or financing through debt investments, royalties or revenue interests 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, realizing capital appreciation from equity-related investments in the life science sector.

We primarily provide capital in exchange for an interest in an existing revenue stream, which can take several forms, but is most commonly either a royalty derived from the sales of a life science product from the marketing efforts of a third party or from the marketing efforts of a partner company. Our structured debt investments may include warrants or other features, giving us the potential to realize enhanced returns on a portion of our portfolio.

On August 26, 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris, which became our wholly-owned subsidiary. Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence® platform. Since its founding in 2013, Enteris has advanced multiple internal and external programs leveraging Peptelligence®, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation.

Our strategy is to utilize the Peptelligence® platform to create a portfolio of milestone and royalty income, and thus increase our net income and book value, by out-licensing our technology in two ways. First, we intend to out-license our technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. Second, we intend to out-license to pharmaceutical companies our internally developed reformulations of approved, off-patent injectable therapeutic treatments where Peptelligence® enables oral delivery, resulting in meaningful improvements for patients and caregivers. We also generate income by providing customers pharmaceutical development, formulation and manufacturing with the ultimate goal of generating new out-license agreements of our technology.

The table below provides an overview of our outstanding finance receivables transactions as of, and for the three and nine months ended September 30, 2021 (in thousands, except rate, share and per share data).

Unless otherwise specified, our senior secured debt assets generally are repaid by a revenue interest that is charged on a company’s quarterly net sales and royalties.

Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the nine months ended September 30, 2021, compared to those discussed in our Annual Report.

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

Revenues decreased to $9.6 million for the three months ended September 30, 2021 from $10.6 million for the three months ended September 30, 2020. The decrease was primarily the result of a $2.6 million decrease in revenues from our Pharmaceutical Development segment, partially offset by a $1.5 million increase in interest and fees earned on our finance receivables. The decrease in Pharmaceutical Development segment revenue was primarily the result of $2.5 million of non-recurring milestone revenue received in 2020 related to Enteris’ license agreement with Cara. The $1.5 million increase in revenue attributable to our Finance Receivables segment primarily consists of a $1.4 million net increase in royalty income and a $1.1 million increase in fees and interest earned on our finance receivables due to funding new and existing loans. The increase in revenue was partially offset by a $1.0 million decrease in interest and fees earned on finance receivables that were paid off or paid down since the third quarter of 2020.

Interest expense consists of interest accrued on our revolving line of credit, unused line of credit and maintenance fees, as well as amortization of debt issuance costs. Interest expense for both the three months ended September 30, 2021 and 2020 was $0.1 million, respectively.

Pharmaceutical manufacturing, research and development expense increased from $1.2 million for the three months ended 2020 to $2.5 million for the three months ended September 30, 2021. The $1.3 million increase was primarily due to an increase in manufacturing materials for pipeline projects and clinical trials.

We did not recognize any change in fair value of acquisition-related contingent consideration during the three months ended September 30, 2021, and a $0.2 million remeasurement adjustment was made during the three months ended September 30, 2020. Please refer to Part I, Item I, Financial Statements, Note 7 of the notes to the unaudited condensed consolidated financial statements for further information regarding acquisition-related contingent consideration.

The $1.9 million decrease in depreciation and amortization expense for the three months ended September 30, 2021 primarily consists of a decrease in amortization expense related to the intangible assets of Enteris. Amortization expense is aligned with the expected future cash flows of the intangible assets.

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff and Board, legal and audit expenses, and corporate governance expenses. General and administrative expenses increased to $3.6 million for the three months ended September 30, 2021 from $2.5 million for the three months ended 2020. The $1.1 million increase was primarily due to a $1.0 million increase in expenses incurred in connection with the SRC’s efforts to identify, review and explore strategic alternatives for the Company; such expenses primarily consist of legal and financial consulting fees, as well as Board compensation.

Other income (expense), net for three months ended September 30, 2021 reflected a net fair market value loss of $0.2 million on our warrant derivatives and a net fair market value gain of $0.3 million on our Misonix common stock. Other income (expense), net for the three months ended September 30, 2020 reflected a net fair market value gain of $0.1 million on our warrant derivatives and a net fair market value loss of $0.2 million on our Misonix common stock.

During the three months ended September 30, 2021 and 2020, we recognized income tax expense of $0.5 million and income tax benefit of $0.5 million, respectively. The $1.0 million increase in income tax expense is a result of higher taxable income for the three months ended September 30, 2021 when compared to the same period of the prior year.

We generated revenues of $41.2 million and $25.8 million for the nine months ended September 30, 2021 and 2020, respectively. The $15.4 million increase consisted primarily of a $6.9 million increase in interest and fees earned on our finance receivables and a $8.2 million increase in revenues from our Pharmaceutical Development segment. The increase in Pharmaceutical Development segment revenue included milestone revenue related to Enteris’ license agreement with Cara. The $6.9 million increase in revenue attributable to our Finance Receivables segment was the result of a $5.1 million net increase in royalty income and a $2.8 million increase in fees and interest earned on our finance receivables due to funding new and existing loans. The increase in revenue was partially offset by a $1.0 million decrease in interest and fees earned on finance receivables that were paid off or paid down since the third quarter of 2020.

We did not recognize any credit loss provision or impairment expense during the nine months ended September 30, 2021. We recognized impairment expense of $0.2 million on our available-for-sale debt security during the nine months ended September 30, 2020.

Interest expense consists of interest accrued on our revolving line of credit, unused line of credit and maintenance fees, as well as amortization of debt issuance costs. Interest expense for the nine months ended September 30, 2021 and 2020 was $0.3 million and $0.4 million, respectively.

Pharmaceutical manufacturing, research and development expense increased from $3.3 million for the nine months ended September 30, 2020 to $5.6 million for nine months ended September 30, 2021. The $2.3 million increase was primarily due to an increase in manufacturing materials for pipeline projects and clinical trials.

We recognized a $0.1 million change in fair value of acquisition-related contingent consideration during the nine months ended September 30, 2021, and a $2.0 million remeasurement adjustment was made during the three months ended September 30, 2020. Please refer to Part I, Item I, Financial Statements, Note 7 of the notes to the unaudited condensed consolidated financial statements for further information regarding acquisition-related contingent consideration.

The $6.3 million decrease in depreciation and amortization expense for the nine months ended September 30, 2021 primarily consists of a decrease in amortization expense related to the intangible assets of Enteris. Amortization expense is aligned with the expected future cash flows of the intangible assets.

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff and Board, legal and audit expenses, and corporate governance expenses. General and administrative expenses increased to $9.8 million for the nine months ended September 30, 2021 from $8.2 million for the nine months ended September 30, 2020. The $1.6 million increase was primarily due to a $1.4 million increase in expenses incurred in connection with the SRC’s efforts to identify, review and explore strategic alternatives for the Company; such expenses primarily consist of legal and financial consulting fees, as well as Board compensation. The increase also included a $0.2 million increase in salaries and benefits expense, as well as a $0.3 million increase in overall office, insurance and rent expense. The increase was partially offset by a $0.2 million decrease in other professional fees.

Other income, net for nine months ended September 30, 2021 reflected a net fair market value gain of $0.7 million on our warrant derivatives and a net fair market value gain of $1.6 million on our Misonix common stock. Other expense, net for the nine months ended September 30, 2020 reflected a net fair market value loss of $1.2 million on our warrant derivatives and a net fair market value loss of $0.7 million on our Misonix common stock.

During the nine months ended September 30, 2021 and 2020, we recognized income tax expense of $5.0 million and tax benefit of $0.2 million, respectively. The $5.2 million increase in income tax expense is a result of higher taxable income for the nine months ended September 30, 2021 when compared to the same period of the prior year.

As of September 30, 2021, we had $18.6 million in cash and cash equivalents, compared to $3.0 million in cash and cash equivalents as of December 31, 2020. The primary driver of the $15.6 million increase in our cash balance was $58.3 million of interest, fees, principal and royalty payments received on our finance receivables and a net $5.0 million of payments generated by our Pharmaceutical Development segment (the net $5.0 million includes a $10.0 million payment related to the completion of a milestone under the License Agreement less $6.1 million paid to the seller of Enteris, pursuant to the provisions of the merger agreement). The increase was partially offset by $19.8 million of investment funding, net of deferred fees and origination expenses; $16.0 million of accounts payable, payroll and benefits expense, including $3.2 million for Enteris’ internal pipeline projects; and $11.8 million of net borrowings and repayments on our credit facility.

Subsequent to September 30, 2021, we received $35.7 million of interest, fees and principal payments on our finance receivables, including $32.1 million for the payoff of two term loans (please refer to Part I. Financial Information, Item 1. Financial Statements, Note 11 of the notes to the unaudited condensed consolidated financial statements for further details). As of November 8, 2021, we had $56.8 million in cash and cash equivalents.

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

As of September 30, 2021, our finance receivables portfolio contains $196.1 million of finance receivables, $3.0 million of marketable investments, and $3.5 million related to our cost method investment. In the aggregate, we expect these assets to generate positive cash flows in 2021. However, the COVID-19 pandemic has created substantial uncertainty in the global markets and economy; therefore, we will continue to monitor the short and long-term impact this may have on our finance receivables portfolio. In addition, the majority of our finance receivables portfolio are debt instruments that carry floating interest rates with a LIBOR-based interest rate floor. Changes in interest rates, including LIBOR rates, may affect the interest income for debt instruments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

We expect the Pharmaceutical Development segment to generate positive cash flow above its expenses from proceeds received under its license agreements and customer relationships; however, the timing of the receipt of payments under the license agreements is uncertain and dependent upon the success of our technology licensees’ pharmaceutical development candidates. Also, the COVID-19 pandemic has resulted in disruption and delays to pharmaceutical clinical trials in general and may impact the expected timing of our technology licensees’ ability to achieve milestones upon which we receive income pursuant to our license agreements.

Though we expect in the aggregate that the Company will generate positive cash flow in excess of our expenses, given the abrupt decline in global economic activity, and the uncertain recovery from such decline, caused by COVID-19, we cannot predict this with certainty.

We entered into a $20.0 million revolving credit facility in June 2018. The credit facility was amended on September 27, 2021 to extend the termination date to September 30, 2022 and to increase the credit facility commitment to $22.0 million. We continue to explore other options with respect to a new credit facility. As of September 30, 2021, approximately $22.0 million was available for borrowing under the credit facility.

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage partner companies’ 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 partner company 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. Please refer to Item 1. Financial Statements, Note 7 of the notes to the unaudited condensed consolidated financial statements.

During the nine months ended September 30, 2021, our cash and cash equivalents were deposited in accounts at well capitalized financial institutions. The fair value of our cash and cash equivalents at September 30, 2021 approximated its carrying value.

We are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flow.

As we seek to provide capital to a broad range of life science companies, institutions and investors with the majority of our finance receivables portfolio paying interest based on floating interest rates with a LIBOR floor, 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 are 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 do not currently engage in any interest rate hedging activities. We constantly monitor our portfolio and position our portfolio to respond appropriately to a reduction in credit rating of any of our investments.

During 2018, we entered into a revolving credit facility. As we borrow funds to make additional investments, our income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have debt outstanding, our cost of funds would increase, which could reduce our income, especially to the extent we continue to hold fixed rate investments. We generally seek to mitigate this risk by pricing our debt investments with floating interest rates to maintain the spread of our portfolio over the cost of leverage. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations, which we have not done. Adverse developments resulting from changes in interest rates or hedging transactions could have a materially adverse effect on our business, financial condition and results of operations. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our investment income, net of borrowing expenses.

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

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 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 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 as of the end of the period covered by this report.

There have been no changes during the nine months ended September 30, 2021 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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, 2020, filed with the SEC on March 31, 2021. There are no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

* 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.

+ XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Pursuant to the requirements of Section 13 or 15(d) 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, on November 12, 2021.

i Delaware	i 77-0435679
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

i 14755 Preston Road, i Suite 105
i Dallas, i TX	i 75254
(Address of Principal Executive Offices)	(Zip Code)

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

i Common Stock, par value $0.001 per share	i SWKH	The i Nasdaq Stock Market LLC
i Preferred Stock Purchase Rights	i SWKH	The i Nasdaq Stock Market LLC

	September 30, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	i 18,639		$	i 3,008
Interest and accounts receivable, net		i 2,254			i 1,911
Marketable investments		i 2,767			i 1,210
Other current assets		i 1,101			i 542
Total current assets		i 24,761			i 6,671

Finance receivables, net		i 196,141			i 204,491
Marketable investments		i 198			i 241
Cost method investment		i 3,491			i 3,491
Deferred tax assets, net		i 22,649			i 27,491
Warrant assets		i 3,650			i 2,972
Intangible assets, net		i 10,507			i 13,617
Goodwill		i 8,404			i 8,404
Property and equipment, net		i 5,791			i 5,211
Other non-current assets		i 1,029			i 1,312
Total assets	$	i 276,621		$	i 273,901

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	i 4,494		$	i 3,652
Revolving credit facility		i 8			i 11,758
Total current liabilities		i 4,502			i 15,410

Contingent consideration payable		i 10,670			i 16,900
Other non-current liabilities		i 779			i 1,079
Total liabilities		i 15,951			i 33,389

Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock, $ i i 0.001 / par value; i i 5,000,000 / shares authorized; i i i i no / / / shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—			—
Common stock, $ i i 0.001 / par value; i i 250,000,000 / shares authorized; i i 12,801,313 / and i i 12,792,586 / shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		i 13			i 13
Additional paid-in capital		i 4,431,480			i 4,430,924
Accumulated deficit		( i 4,170,823	)		( i 4,190,425	)
Total stockholders’ equity		i 260,670			i 240,512
Total liabilities and stockholders’ equity	$	i 276,621		$	i 273,901


	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Consolidated net income	$	i 19,602		$	i 558
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment expense		—			i 163
Amortization of debt issuance costs		i 35			i 141
Deferred income taxes		i 4,842			( i 206	)
Change in fair value of warrants		( i 678	)		i 1,151
Change in fair value of equity securities		( i 1,557	)		i 666
Change in fair value of acquisition-related contingent consideration		( i 147	)		i 1,964
Loan discount amortization and fee accretion		( i 2,016	)		( i 1,598	)
Interest paid-in-kind		( i 698	)		( i 2,369	)
Stock-based compensation		i 556			i 549
Depreciation and amortization expense		i 3,305			i 9,629
Changes in operating assets and liabilities:
Interest and accounts receivable		( i 343	)		( i 2,054	)
Other assets		( i 371	)		( i 819	)
Accounts payable and other liabilities		i 542			i 1,434
Net cash provided by operating activities		i 23,072			i 9,209

Cash flows from investing activities:
Investment in finance receivables		( i 20,100	)		( i 12,458	)
Repayment of finance receivables		i 31,162			i 5,928
Corporate debt securities principal payment		i 43			i 49
Purchases of property and equipment		( i 877	)		( i 2,354	)
Other		i 164			( i 220	)
Net cash provided by (used in) investing activities		i 10,392			( i 9,055	)

Cash flows from financing activities:
Net (payments on) proceeds from credit facility		( i 11,750	)		—
Payment of acquisition-related contingent consideration		( i 6,083	)		—
Repurchases of common stock, including fees and expenses		—			( i 1,998	)
Net cash used in financing activities		( i 17,833	)		( i 1,998	)

Net increase in cash and cash equivalents		i 15,631			( i 1,844	)
Cash and cash equivalents at beginning of period		i 3,008			i 11,158
Cash and cash equivalents at end of period	$	i 18,639		$	i 9,314

Portfolio	September 30, 2021			December 31, 2020
Term loans	$	i 149,874		$	i 164,032
Royalty purchases		i 54,655			i 48,847
Total before allowance for credit losses		i 204,529			i 212,879
Allowance for credit losses		( i 8,388	)		( i 8,388	)
Total carrying value	$	i 196,141		$	i 204,491

SWK Holdings Corp. – ‘10-Q’ for 9/30/21

On: Friday, 11/12/21, at 4:08pm ET · For: 9/30/21 · Accession #: 1552781-21-810 · File #: 1-39184

Previous ‘10-Q’: ‘10-Q’ on 8/16/21 for 6/30/21 · Next: ‘10-Q’ on 5/10/22 for 3/31/22 · Latest: ‘10-Q’ on 11/8/23 for 9/30/23

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Unaudited Condensed Consolidated Balance Sheets—September 30, 2021 and December 31, 2020	2

	Unaudited Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2021 and 2020	3

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity—Three and Nine Months Ended September 30, 2021 and 2020	4

	Unaudited Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2021 and 2020	5

	Notes to the Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

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	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	Signatures	31

	September 30, 2021		December 31, 2020
Corporate debt securities	$	i 198	$	i 241
Equity securities		i 2,767		i 1,210
Total marketable investments	$	i 2,965	$	i 1,451


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Unrealized net income (loss) on equity securities reflected in the unaudited condensed consolidated statements of income	$	i 342	$	( i 178	)	$	i 1,557	$	( i 666	)

Fiscal Year	Amount
Remainder of 2021	$	i 548
2022		i 1,828
2023		i 1,757
2024		i 1,413
2025		i 1,069
2026 and thereafter		i 3,892
Total	$	i 10,507


Trio Healthcare Ltd. Loan	$	i 4.4
Ideal Implant, Inc.		i 2.0
Total unfunded commitments	$	i 6.4

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.


Fair value – December 31, 2020	$	i 2,972
Issued		—
Canceled		—
Change in fair value		i 678
Fair value – September 30, 2021	$	i 3,650

	September 30, 2021		December 31, 2020
Dividend rate range		i —		i —
Risk-free rate range		i 0.53% to i 1.32%		i 0.17% to i 0.65%
Expected life (years) range		2.8 to 6.6		3.6 to 7.4
Expected volatility range		i 61.3% to i 157.9%		i 74.3% to i 174.7%

	September 30, 2021		December 31, 2020
Pharmaceutical Development Segment
Deferred revenue	$	i 226	$	i 350
Total contract liabilities	$	i 226	$	i 350

Royalty Purchases and Other Financings	Licensed Technology	Footnote	Funded Amount		GAAP Balance		Contract Rate	Revenue Recognized
Royalty Purchases and Other Financings	Licensed Technology	Footnote	Funded Amount		GAAP Balance		Contract Rate	YTD			Q3
Beleodaq®	Oncology treatment		$	7,600	$	5,059	N/A	$	1,274		$	456
Besivance®	Ophthalmic antibiotic	(3)	6,000		—		N/A	(26		)	(25		)
Best ABT, Inc.	Oncology diagnosis	(1), (2)	5,784		3,472		N/A	—			—
Coflex®/Kybella®/Zalviso®	Spinal stenosis/Submental fullness		4,350		4,160		N/A	465			155
Cambia®	NSAID migraine treatment	(1)	8,500		2,637		N/A	(9		)	(56		)
Forfivo XL®	Depressive disorder treatment		6,000		1,490		N/A	982			307
Ideal Implant, Inc.	Aesthetics		3,000		3,097		N/A	203			203
Iluvien®	Diabetic macular edema		16,501		16,205		N/A	1,813			641
Narcan®	Opioid overdose treatment		17,500		539		N/A	2,423			1,030
Ostomy products royalty	Ostomy products		3,900		4,443		N/A	450			156
Secured Royalty Financing (Marketable Investment)	Women’s health	(1), (2)	3,000		198		11.5%	—			—
Tissue Regeneration Therapeutics	Umbilical cord banking	(2)	3,250		3,491		N/A	—			—
Veru, Inc.	Synthetic Royalty	(4)	5,166		5,165		N/A	5,914			1,411

			Maturity Date			GAAP Balance		Contract Rate		Revenue Recognized
Term Loans	Type	Footnote	Maturity Date	Principal		GAAP Balance		Contract Rate		YTD		Q3
4Web, Inc.	First Lien		06/03/23	$	24,929	$	25,358	12.8	%	$	2,700	$	983
Acerus Pharmaceuticals, Inc.	First Lien		10/11/23	6,550		6,519		12.0	%	968		298
B&D Dental Corporation	First Lien	(2), (5)	12/10/18	8,365		8,334		14.0	%	—		—
BIOLASE, Inc.	First Lien		11/09/23	14,300		14,428		12.3	%	1,645		558
CeloNova BioSciences, Inc.	First Lien	(6)	12/31/21	2,054		2,058		12.5	%	360		93
DxTerity Diagnostics, Inc.	First Lien	(7)	11/30/21	2,474		3,217		13.3	%	1,624		340
Epica International, Inc.	First Lien		07/23/23	12,000		12,336		13.5	%	1,202		403
eTon Pharmaceuticals, Inc.	First Lien		11/13/24	7,000		6,862		12.0	%	761		257
Flowonix Medical, Inc.	First Lien		12/23/25	10,000		9,954		11.0	%	961		331
Harrow Health, Inc.	First Lien	(3)	07/19/23	—		—		9.0% - 12.0	%	1,112		—
Keystone Dental, Inc.	First Lien		11/14/22	15,000		15,455		11.5	%	1,401		473
Misonix, Inc.	First Lien	(8)	06/30/23	30,096		30,089		10.0% - 12.3	%	2,384		805
Sincerus Pharmaceuticals, Inc.	First Lien		03/19/26	9,750		9,765		13.0	%	681		360
Tenex Health, Inc.	First Lien	(3)	06/30/21	—		—		13.0	%	349		—
Thermedx, LLC	Sub Note	(9)	05/20/29	466		466		11.8	%	40		14
Trio Healthcare Ltd.	First Lien		07/01/26	5,100		5,033		12.5	%	180		180

			No of		GAAP		Change in Fair Value
Common Stock	Footnote		Shares		Balance		YTD		Q3
Misonix, Inc. Common Stock		(8)		109,353	$	2,767	$	1,557	$	342
Sincerus Pharmaceuticals, Inc.				26,575		—		—		—

	Number of	Exercise Price	GAAP		Change in Fair Value
Warrants to Purchase Stock	Shares	per Share	Balance		YTD		Q3
4Web, Inc.	TBD	TBD	$	—	$	—	$	—
Acerus Pharmaceuticals, Inc.	7,764,004	0.05 CAD	196		(18)		(62)
B&D Dental Corporation	225	0.01	—		—		—
BIOLASE, Inc.	550,977	0.39	322		94		(35)
CeloNova BioSciences, Inc.	TBD	0.01	—		—		—
DxTerity Diagnostics, Inc.	2,019,231	2.08	—		—		—
Epica International, Inc.	TBD	TBD	—		—		—
eTon Pharmaceuticals, Inc.	51,239	5.86	126		(175)		(55)
eTon Pharmaceuticals, Inc.	18,141	6.62	45		(63)		(19)
EyePoint Pharmaceuticals, Inc.	40,910	11.00	224		99		35
EyePoint Pharmaceuticals, Inc.	7,773	19.30	34		15		5
Flowonix Medical, Inc.	155,561	3.86	—		—		—
Harrow Health, Inc.	373,847	2.08	2,703		726		(83)

			Income Recognized
	Assets		YTD		Q3 2021
Total finance receivables	$	196,141	$	29,857	$	9,373
Total marketable investments		2,965		N/A		N/A
Cost method investment		3,491		N/A		N/A
Fair value of warrant assets		3,650		N/A		N/A
Total assets/revenues	$	206,247	$	29,857	$	9,373

(1)	Investment considered impaired.
(2)	Investment on nonaccrual.
(3)	The loan/royalty was paid off during 2021.
(4)	The return premium pursuant to the credit agreement was reached, and the residual royalty agreement commenced during the third quarter.
(5)	B&D is evaluating strategic alternatives for the business. The first lien loan is currently in default.
(6)	Maturity date was amended to December 31, 2021 in July 2021.
(7)	Maturity date was amended to November 30, 2021 in June 2021.
(8)	On October 29, 2021, Misonix was acquired by Bioventus. Upon closing of the transaction, the Misonix term loan was paid off. We also tendered our Misonix common stock and received $1.9 million in cash and 71,361 shares of Bioventus common stock.
(9)	The loan was paid off on October 22, 2021.

				Filing	Filed
Number	Exhibit Description	Form	Exhibit	Date	Herewith

31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

32.01	Certification of Chief 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 Chief 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				X

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

	SWK Holdings Corporation

	By:	/s/ Winston L. Black
		Winston L. Black
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Charles M. Jacobson
		Charles M. Jacobson
		Chief Financial Officer
		(Principal Financial Officer)

This ‘10-Q’ Filing	Date	Other Filings

	12/31/22
	12/15/22
	9/30/22
	12/31/21	10-K, 10-K/A, 4, 8-K
	11/30/21
Filed on:	11/12/21	8-K, SC 13D/A
	11/8/21
	11/1/21	8-K
	10/29/21
	10/22/21
For Period end:	9/30/21	4
	9/27/21	8-K
	6/30/21	10-Q, 4
	5/17/21	10-Q, 3, 8-K
	3/31/21	10-K, 10-Q, 4, 8-K
	12/31/20	10-K, 10-K/A, 4
	9/30/20	10-Q, 4
	6/30/20	10-Q, 4
	3/31/20	10-Q, 4, 8-K
	3/12/20
	12/31/19	10-K, 4
	11/15/19
	8/26/19	8-K, 8-K/A
	6/29/18	4, 8-K
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