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SWK Holdings Corp – ‘10-Q’ for 9/30/14

On:  Friday, 11/14/14, at 1:43pm ET   ·   For:  9/30/14   ·   Accession #:  1552781-14-1003   ·   File #:  0-27163

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/14/14  SWK Holdings Corp                 10-Q        9/30/14   64:4.8M                                   2ENGAGE/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    355K 
 2: EX-31.01    Certification -- §302 - SOA'02                      HTML     23K 
 3: EX-31.02    Certification -- §302 - SOA'02                      HTML     23K 
 4: EX-32.01    Certification -- §906 - SOA'02                      HTML     20K 
 5: EX-32.02    Certification -- §906 - SOA'02                      HTML     19K 
43: R1          Document And Entity Information                     HTML     44K 
32: R2          Unaudited Condensed Consolidated Balance Sheets     HTML    118K 
41: R3          Unaudited Condensed Consolidated Balance Sheets     HTML     40K 
                (Parenthetical)                                                  
45: R4          Unaudited Condensed Consolidated Statements of      HTML     79K 
                Income                                                           
59: R5          Unaudited Condensed Consolidated Statements of      HTML     44K 
                Comprehensive Income                                             
34: R6          Unaudited Condensed Consolidated Statements of      HTML    105K 
                Cash Flows                                                       
40: R7          Supplemental Cash Flow Information                  HTML     23K 
29: R8          SWK Holdings Corporation and Summary of             HTML     70K 
                Significant Accounting Policies                                  
21: R9          Finance Receivables                                 HTML     76K 
60: R10         Marketable Investments                              HTML     38K 
47: R11         Variable Interest Entities                          HTML     46K 
46: R12         Loan Credit Agreement with Related Party            HTML     30K 
51: R13         Stockholders' Equity                                HTML     72K 
52: R14         Fair Value Measurements                             HTML     63K 
50: R15         Income Taxes                                        HTML     32K 
53: R16         Subsequent Events                                   HTML     30K 
42: R17         Accounting Policies, by Policy (Policies)           HTML    116K 
44: R18         SWK Holdings Corporation and Summary of             HTML     32K 
                Significant Accounting Policies (Tables)                         
49: R19         Finance Receivables (Tables)                        HTML     33K 
64: R20         Marketable Investments (Tables)                     HTML     24K 
55: R21         Variable Interest Entities (Tables)                 HTML     35K 
37: R22         Loan Credit Agreement (Tables)                      HTML     23K 
48: R23         Stockholders Equity (Tables)                        HTML     53K 
39: R24         Fair Value Measurements (Tables)                    HTML     59K 
17: R25         Income Taxes (Tables)                               HTML     26K 
56: R26         Supplemental Cash Flow Information (Details)        HTML     28K 
61: R27         SWK Holdings Corporation and Summary of             HTML     32K 
                Significant Accounting Policies (Details                         
                Narrative)                                                       
25: R28         SWK Holdings Corporation and Summary of             HTML     43K 
                Significant Accounting Policies (Details)                        
24: R29         Finance Receivables (Details)                       HTML     30K 
27: R30         Finance Receivables (Details Narrative)             HTML    131K 
28: R31         Finance Receivables (Details 2)                     HTML     28K 
30: R32         Marketable Investments (Details)                    HTML     26K 
16: R33         Marketable Investments (Details Narrative)          HTML     34K 
54: R34         Marketable Investments (Details 2)                  HTML     29K 
36: R35         Variable Interest Entities (Details Narrative)      HTML     42K 
38: R36         Variable Interest Entities (Details)                HTML     29K 
19: R37         Variable Interest Entities (Details 2)              HTML     39K 
63: R38         Loan Credit Agreement with Related Party (Details   HTML     66K 
                Narrative)                                                       
12: R39         Loan Credit Agreement with Related Party (Details)  HTML     31K 
31: R40         Stockholders' Equity (Details Narrative)            HTML     75K 
58: R41         Stockholders' Equity (Details 2)                    HTML     66K 
18: R42         Stockholders' Equity (Details 3)                    HTML     36K 
23: R43         Stockholders' Equity (Details 4)                    HTML     41K 
26: R44         Stockholders' Equity (Details 5)                    HTML     27K 
33: R45         Fair Value Measurements (Details)                   HTML     35K 
15: R46         Fair Value Measurements (Details 2)                 HTML     39K 
20: R47         Fair Value Measurements (Details 3)                 HTML     58K 
13: R48         Income Taxes (Details)                              HTML     35K 
57: R49         Income Taxes (Details 2)                            HTML     38K 
62: XML         IDEA XML File -- Filing Summary                      XML     89K 
14: EXCEL       IDEA Workbook of Financial Reports                  XLSX    165K 
22: EXCEL       IDEA Workbook of Financial Reports (.xls)            XLS    658K 
 6: EX-101.INS  XBRL Instance -- swkhob-20140930                     XML   1.09M 
 8: EX-101.CAL  XBRL Calculations -- swkhob-20140930_cal             XML    129K 
 9: EX-101.DEF  XBRL Definitions -- swkhob-20140930_def              XML    456K 
10: EX-101.LAB  XBRL Labels -- swkhob-20140930_lab                   XML    980K 
11: EX-101.PRE  XBRL Presentations -- swkhob-20140930_pre            XML    680K 
 7: EX-101.SCH  XBRL Schema -- swkhob-20140930                       XSD    164K 
35: ZIP         XBRL Zipped Folder -- 0001552781-14-001003-xbrl      Zip    130K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Item 1
"Financial Statements
"Unaudited Condensed Consolidated Balance Sheets-September 30, 2014 and December 31, 2013
"Unaudited Condensed Consolidated Statements of Income-Three and Nine Months Ended September 30, 2014 and 2013
"Unaudited Condensed Consolidated Statements of Comprehensive Income -Three and Nine Months Ended September 30, 2014 and 2013
"Unaudited Condensed Consolidated Statements of Cash Flows-Nine Months Ended September 30, 2014 and 2013
"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
"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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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 September 30, 2014

 

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

 

 

 

SWK Holdings Corporation

(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.)
   
   

15770 North Dallas Parkway, Suite 1290

Dallas, TX 75248

84604
(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 November 7, 2014, there were 99,082,894 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding. 

 

 C: 
 
 

SWK Holdings Corporation

Form 10-Q

Quarter Ended September 30, 2014

 

Table of Contents

 

PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
  Unaudited Condensed Consolidated Balance Sheets—September 30, 2014 and December 31, 2013 1
     
  Unaudited Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2014 and 2013 2
     
  Unaudited Condensed Consolidated Statements of Comprehensive Income —Three and Nine Months Ended September 30, 2014 and 2013 3
     
  Unaudited Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2014 and 2013 4
     
  Notes to the Unaudited Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
     
Item 4 Controls and Procedures 37
   
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 38
     
Item 1A.   Risk Factors 38
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
     
Item 3. Defaults Upon Senior Securities 38
     
Item 4. Mine Safety Disclosures 38
     
Item 5. Other Information 38
     
Item 6. Exhibits 39
     
  Signatures 40
     
  Certifications  

 

 C: 
 
 

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, 2013. 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.

 

 C: 
 
 

PART I. FINANCIAL INFORMATION

 

ITEM I.              FINANCIAL STATEMENTS

 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

   September 30,
2014
  December 31,
2013
ASSETS          
Current assets:          
Cash and cash equivalents  $69,183   $7,664 
Accounts receivable   696    528 
Prepaid expenses and other current assets   521    16 
Finance receivables   961    660 
Deferred tax asset   136    164 
Total current assets   71,497    9,032 
Finance receivables   40,505    28,626 
Marketable investments   4,849    3,119 
Investment in unconsolidated entities   9,347    10,425 
Deferred tax asset   7,869    9,639 
Debt issuance costs   416    523 
Other assets   619    211 
Total assets  $135,102   $61,575 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $694   $363 
Total current liabilities   694    363 
Loan credit agreement   —      5,000 
Warrant liability   536    292 
Other long-term liabilities   —      3 
Total liabilities   1,230    5,658 
           
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; 99,082,894 and 43,034,894 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively   99    43 
Additional paid-in capital   4,396,652    4,321,454 
Accumulated deficit   (4,267,912)   (4,271,193)
Accumulated other comprehensive income   —      —   
Total SWK Holdings Corporation stockholders’ equity   128,839    50,304 
Non-controlling interests in consolidated entities   5,033    5,613 
Total stockholders’ equity   133,872    55,917 
Total liabilities and stockholders’ equity  $135,102   $61,575 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 C: 
 C: 1
 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

   Three Months Ended September 30,  Nine Months Ended September 30,
   2014  2013  2014  2013
             
Revenues                    
Finance receivable interest income, including fees  $1,850   $811   $5,866   $1,738 
Marketable investments interest income   91    79    269    79 
Income related to investments in unconsolidated entities   1,769    627    4,465    1,042 
Management fees   8    41    146    140 
                     
Total Revenues   3,718    1,558    10,746    2,999 
Costs and expenses:                    
General and administrative   1,131    463    2,542    1,278 
Total costs and expenses   1,131    463    2,542    1,278 
Income from operations   2,587    1,095    8,204    1,721 
Interest and other income (expense), net   (711)   (133)   (747)   (96)
Income before provision for income tax   1,876    962    7,457    1,625 
Provision for income tax   500    13    1,798    23 
Consolidated net income   1,376    949    5,659    1,602 
Net income attributable to non-controlling interests   944    329    2,378    543 
Net income attributable to SWK Holdings Corporation Stockholders  $432   $620   $3,281   $1,059 
Net income per share attributable to SWK Holdings Corporation Stockholders                    
Basic  $0.01   $0.01   $0.07   $0.03 
Diluted  $0.01   $0.01   $0.07   $0.03 
Weighted Average Shares                    
Basic   67,286    41,352    50,180    41,340 
Diluted   67,573    41,464    50,223    41,424 
                     

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 C: 
2
 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

 

   Three Months Ended
September 30,
  Nine Months Ended
September 30,
   2014  2013  2014  2013
Consolidated net income  $1,376   $949   $5,659   $1,602 
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   1,376    949    5,659    1,602 
Comprehensive income attributable to non-controlling interests   944    329    2,378    543 
Comprehensive income attributable to SWK Holdings Corporation Stockholders  $432   $620   $3,281   $1,059 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 C: 
3
 

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   Nine Months Ended
September 30,
   2014  2013
Cash flows from operating activities:          
Consolidated net income  $5,659   $1,602 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:          
Income from investments in unconsolidated entities   (4,465)   (1,042)
Deferred income taxes   1,798    —   
Interest income in excess of cash collected   (894)   —   
Loan discount amortization and fee accretion   (206)   (224)
Change in fair value of warrants   197    125 
Stock-based compensation   755    203 
Debt issuance cost amortization   107    16 
Depreciation and amortization   2    2 
Changes in operating assets and liabilities:          
Accounts receivable   (168)   (92)
Restricted cash   —      391 
Prepaid expenses and other assets   (505)   4 
Interest reserve   —      (393)
Accounts payable and accrued liabilities   328    283 
Net cash provided by operating activities   2,608    875 
           
Cash flows from investing activities:          
Cash distributions from investments in unconsolidated entities   5,543    3,403 
Net increase in finance receivables   (11,672)   (13,789)
Investment in marketable investments   (1,500)   (3,000)
Purchases of property and equipment   (1)   (4)
Net cash used in investing activities   (7,630)   (13,390)
           
Cash flows from financing activities:          
Net proceeds from issuance of common stock   74,499    —   
Net repayment of loan credit agreement   (5,000)   —   
Distributions to non-controlling interests   (2,958)   (1,815)
Debt issuance costs   —      (335)
Net cash provided by (used in) financing activities   66,541    (2,150)
           
Net increase (decrease) in cash and cash equivalents   61,519    (14,665)
Cash and cash equivalents at beginning of period   7,664    24,584 
Cash and cash equivalents at end of period  $69,183   $9,919 

 

Noncash activity:

 

The Company received a warrant for 347,222 common shares at an exercise price of $0.43 per share in conjunction with the additional draw on a term loan on February 4, 2014. The fair value of the warrant at time of receipt was $99,000. The warrant is reflected in other assets in the unaudited condensed consolidated balance sheet.

 

The Company received a warrant for 681,090 common shares at an exercise price of $0.94 per share in conjunction with a new term loan on July 30, 2014. The fair value of the warrant at the time of receipt was $379,000. On September 9, 2014, the Company assigned rights under the warrant to 200,321 common shares to an investment management client as part of a Loan Assignment. The fair value of the assigned rights at time of transfer was $115,000. The warrant, net of portion assigned, is reflected in other assets in the unaudited condensed consolidated balance sheet.

 

On September 15, 2014, the Company was issued 165,374 shares of Series F Preferred Stock of SynCardia, Inc. in lieu of cash payment of $230,000 on the SynCardia Second Lien Credit Agreement.

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 C: 
4
 

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 (“SWK” or the “Company”) is engaged in investing in the pharmaceutical and biotechnology royalty securitization market.  The Company’s strategy is to provide capital to a broad range of life science companies, institutions and inventors. The Company is currently 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 intends to fill a niche that it believes is underserved in the sub-$50 million transaction size. The Company’s goal is to redeploy its existing assets to earn interest, fee, and other income pursuant to this strategy, and the Company continues to identify and review financing and similar opportunities on an ongoing basis. In addition the Company is also engaged in the business of providing investment advisory services to institutional clients.

  

The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset. The Company believes 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 the Company to utilize the NOLs. The Company is unable to assure investors that it will find suitable financing opportunities or that it will be able to utilize its existing NOLs.

 

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 is 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 operations 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.

 

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, 2014. 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, 2013, filed with the SEC on March 31, 2014.

 

 C: 
5
 

Variable Interest Entities

 

An entity is referred to as a VIE if it possesses one of the following criteria: (i) it is thinly capitalized, (ii) the residual equity holders do not control the entity, (iii) the equity holders are shielded from the economic losses, (iv) the equity holders do not participate fully in the entity’s residual economics, or (v) the entity was established with non-substantive voting interests. The Company consolidates a VIE when it has both the power to direct the activities that most significantly impact the activities of the VIE and the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. Along with the VIEs that are consolidated in accordance with these guidelines, the Company also holds variable interests in other VIEs that are not consolidated because it is not the primary beneficiary. The Company continually monitors both consolidated and unconsolidated VIEs to determine if any events have occurred that could cause the primary beneficiary to change. See Note 4 for further discussion of VIEs.

  

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, useful lives of property and equipment, 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.

 

Equity Method Investments

 

The Company accounts for portfolio companies whose results are not consolidated, but over which it exercises significant influence, under the equity method of accounting. Whether or not the Company exercises significant influence with respect to a portfolio company depends on an evaluation of several factors including, among others, representation of the Company on the portfolio company’s board of directors and the Company’s ownership level. Under the equity method of accounting, the Company does not reflect a portfolio company’s financial statements within the company’s unaudited consolidated financial statements; however, the Company’s share of the income or loss of such portfolio company is reflected in income in the unaudited condensed consolidated statements of income. The Company includes the carrying value of equity method portfolio companies as part of the investment in unconsolidated entities on the unaudited condensed consolidated balance sheets.

 

When the Company’s carrying value in an equity method portfolio company is reduced to zero, the Company records no further losses in its unaudited condensed consolidated statements of income unless the Company has an outstanding guarantee obligation or has committed additional funding to such equity method portfolio company. When such equity method portfolio company subsequently reports income, the Company will not record its share of such income until it exceeds the amount of the Company’s share of losses not previously recognized.

 

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Finance Receivables

 

The Company extends credit to customers through a variety of financing arrangements, including revenue interest term loans. The amounts outstanding on loans are referred to as finance receivables and are included in Finance Receivables on the unaudited condensed consolidated balance sheets.  It is the Company’s expectation that the loans originated will be held for the foreseeable future or until maturity. In certain situations, for example to manage concentrations and/or credit risk, some or all of certain exposures may be sold. Loans for which the Company has the intent and ability to hold for the foreseeable future or until maturity are classified as held for investment (“HFI”). If the Company no longer has the intent or ability to hold loans for the foreseeable future, then the loans are transferred to held for sale (“HFS”). Loans entered into with the intent to resell are classified as HFS.

  

If it is determined that a loan should be transferred from HFI to HFS, then the balance is transferred at the lower of cost or fair value. At the time of transfer, a write-down of the loan is recorded as a write-off when the carrying amount exceeds fair value and the difference relates to credit quality, otherwise the write-down is recorded as a reduction in interest and other income (expense), net, and any loan loss reserve is reversed. Once classified as HFS, the amount by which the carrying value exceeds fair value is recorded as a valuation allowance and is reflected as a reduction to interest and other income.

 

If it is determined that a loan should be transferred from HFS to HFI, the loan is transferred at the lower of cost or fair value on the transfer date, which coincides with the date of change in management’s intent. The difference between the carrying value of the loan and the fair value, if lower, is reflected as a loan discount at the transfer date, which reduces its carrying value. Subsequent to the transfer, the discount is accreted into earnings as an increase to finance revenue over the life of the loan using the effective interest method.

 

Finance receivables are stated at their principal amounts inclusive of deferred loan origination fees.  Interest income is credited as earned based on the effective interest rate method except when a finance receivable becomes past due 90 days or more and doubt exists as to the ultimate collection of interest or principal; in those cases the recognition of income is discontinued.

 

Marketable Investments

 

The Company’s marketable investment portfolio includes two equity securities and one debt security as of September 30, 2014, and one equity security and one debt security as of December 31, 2013. The debt security is classified as an available-for-sale security, which is reported at fair value with unrealized gains or losses recorded in accumulated other comprehensive income, net of applicable income taxes. In any case where fair value might fall below amortized cost, the Company would consider whether that security is other-than-temporarily impaired using all available information about the collectability of the security. The Company would not consider that an other-than temporary impairment for a debt security has occurred if (1) the Company does not intend to sell the debt security, (2) it is not more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis and (3) the present value of estimated cash flows will fully cover the amortized cost of the security. The Company would consider that an other-than-temporary impairment has occurred if any of the above mentioned three conditions are not met.

 

For a debt security for which an other-than-temporary impairment is considered to have occurred, the Company would recognize the entire difference between the amortized cost and the fair value in earnings if the Company intends to sell the debt security or it is more likely than not that the Company will be able to sell the debt security before recovery of its amortized cost basis. If the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, the Company would separate the difference between the amortized cost and the fair value of the debt security into the credit loss component and the non-credit loss component. The credit loss component would be recognized in earnings and the non-credit loss component would be recognized in other comprehensive income, net of applicable income taxes.

 

The Company’s equity securities as of September 30, 2014, represent shares in privately-held companies and do not have a readily determinable fair value. As such, they are currently reflected at cost. As of September 30, 2014, there are no indicators of impairment for these securities.

 

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Derivatives

 

All derivatives held by the Company are recognized in the unaudited condensed consolidated balance sheets at fair value. The accounting treatment for subsequent changes in the fair value depends on their use, and whether they qualify as effective “hedges” for accounting purposes. Derivatives that are not hedges must be adjusted to fair value through the unaudited condensed consolidated statements of income. If a derivative is a hedge, then depending on its nature, changes in its fair value will be either offset against change in the fair value of hedged assets or liabilities through the unaudited condensed consolidated statements of income, or recorded in other comprehensive income. The Company had no derivatives designated as hedges as of September 30, 2014, and December 31, 2013. The Company holds four warrants issued to the Company in conjunction with the term loan investments discussed in Note 2. These warrants are included in other assets in the unaudited condensed consolidated balance sheets. The Company issued a warrant on its own common stock in the year ended December 31, 2013, in conjunction with its credit facility discussed in Note 5. This warrant meets the definition of a derivative and is reflected as warrant liability at fair value in the unaudited condensed consolidated balance sheets as of September 30, 2014, and December 31, 2013

 

Revenue Recognition

 

The Company records interest income on an accrual basis based on the effective interest rate method to the extent that it expects to collect such amounts. The Company recognizes investment management fees as earned over the period the services are rendered.  In general, the majority of investment management fees earned are charged either monthly or quarterly.  Incentive fees, if any, are recognized when earned at the end of the relevant performance period, pursuant to the underlying contract.  Other administrative service revenues are recognized when contractual obligations are fulfilled or as services are provided.

 

Certain Risks and Concentrations

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, finance receivables and marketable investments. The Company invests its excess cash with major U.S. banks and financial institutions. The Company has not experienced any losses on its cash and cash equivalents.

 

The Company performs ongoing credit evaluations of its customers and generally requires collateral.  For the nine months ended September 30, 2014 and 2013, three partner companies accounted for 69 percent and 85 percent of total revenue, respectively. For the three months ended September 30, 2014, two partner companies accounted for 65 percent of total revenue. For the three months ended September 30, 2013, three partner companies accounted for 78 percent of total revenue.

 

The Company does not expect its current or future credit risk exposures to have a significant impact on its operations. However, there can be no assurance that its business will not experience any adverse impact from credit risk in the future.

 

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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  Nine Months Ended
   September 30,  September 30,
   2014  2013  2014  2013
Numerator:                    
Net income attributable to SWK Holdings Corporation Shareholders  $432   $620   $3,281   $1,059 
                     
Denominator:                    
Weighted-average shares outstanding   67,286    41,352    50,180    41,340 
Effect of dilutive securities   287    112    43    84 
                     
Weighted-average diluted shares   67,573    41,464    50,223    41,424 
                     
                     
Basic earnings per share  $0.01   $0.01   $0.07   $0.03 
Diluted earnings per share  $0.01   $0.01   $0.07   $0.03 

 

For the three and nine month periods ended September 30, 2014 and 2013, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately 5.9 million, 6.1 million, 4.2 million and 4.2 million shares, respectively, have been excluded from the calculation of diluted net income per share as all such securities were anti-dilutive.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, (“ASU 2014-09”), “Revenue from Contracts with Customers”. The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its consolidated financial statements nor decided upon the method of adoption.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2015. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

 

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Note 2. Finance Receivables

 

Finance receivables are reported at their determined principal balances net of any unearned income, cumulative charge-offs and unamortized deferred fees and costs. Unearned income and deferred fees and costs are amortized to interest income based on all cash flows expected using the effective interest method.

 

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

 

Portfolio  September 30, 2014  December 31, 2013
       
       
Term Loans  $29,702   $21,420 
Royalty Purchases   11,764    7,866 
Total   41,466    29,286 
Less: current portion   (961)   (660)
Total noncurrent portion of finance receivables  $40,505   $28,626 

 

Term Loans

 

Nautilus Neurosciences, Inc.

 

On December 5, 2012, the Company entered into a credit agreement pursuant to which the lenders party thereto provided to a neurology-focused specialty pharmaceutical company a term loan in the principal amount of $22,500,000.  The loan was repaid on December 17, 2013. The Company initially provided $19,000,000 and a client of the Company provided the remaining $3,500,000 of the loan. The Company subsequently assigned $12,500,000 of the loan to its clients and retained the remaining $6,500,000. The loan was managed by the Company on behalf of its clients pursuant to the terms of each client’s investment management agreement. The Company recognized $335,000 and $1,002,000 in interest income, recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2013, respectively. 

 

Tribute

 

On August 8, 2013, the Company entered into a credit agreement pursuant to which the Company provided to Tribute Pharmaceuticals Canada Inc. (“Tribute”) a secured term loan in the principal amount of $8,000,000. The loan matures on August 8, 2018. The Company provided $6,000,000 at closing and an additional $2,000,000 on February 4, 2014. On October 1, 2014, the credit agreement was amended to increase the secured term loan total commitment to $17,000,000, with $6,000,000 funded at the time of the amendment. The unfunded commitment under the loan is currently $3,000,000.

 

Interest and principal under the loan will be paid by a tiered revenue interest that is charged on quarterly net sales and royalties of Tribute applied in the following priority first, to the payment of all accrued but unpaid interest until paid in full; second to the payment of all principal of the loans.  

 

The loan accrues interest at the LIBOR rate, plus an applicable margin, subject to a 13.5% minimum. In addition, the Company earned an origination fee at closing, and the Company is entitled to an exit fee upon the maturity of the loan, both of which will be accreted to interest income over the term of the loan. The Company recognized $307,000 and $868,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively. The Company recognized $130,000 for the three and nine months ended September 30, 2013.

 

In connection with the loan and at closing, Tribute also issued the Company a warrant to purchase 755,794 common shares at an exercise price of $0.60 per share that may be exercised at any time prior to August 8, 2020, with an initial fair value of $334,000.   In conjunction with the additional draw on February 4, 2014, Tribute issued an additional warrant to purchase 347,222 common shares at an exercise price of $0.432 per share that may be exercised at any time prior to February 4, 2021, with an initial fair value of $99,000. In conjunction with the credit agreement amendment on October 1, 2014, Tribute issued an additional warrant to purchase 740,000 common shares at an exercise price of $0.70 per share that may be exercised at any time prior to October 1, 2019.

 

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The fair market value of the warrants was $385,000 and $204,000 at September 30, 2014, and December 31, 2013, respectively, and is included in other assets in the unaudited condensed consolidated balance sheets. An unrealized holding loss of $316,000 and an unrealized holding gain of $82,000 were included in interest and other income (expense), net in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively. An unrealized holding loss of $69,000 was included in interest and other income (expense), net for the three and nine months ended September 30, 2013. The Company determined the fair value of the warrants outstanding at September 30, 2014, and December 31, 2013, using the Black-Scholes option pricing model with the following assumptions:

 

   September 30, 2014  December 31, 2013
Average Dividend rate   0%   0%
Average Risk-free rate   2.2%   2.5%
Average Expected life (years)   6.0    6.6 
Average Expected volatility   97%   97%

 

In the event of a change of control, a merger or a sale of all or substantially all of Tribute’s assets, the loan shall be due and payable. The Company will be entitled to certain additional payments in connection with repayments of the loan, both on maturity and in connection with a prepayment or partial prepayment. Pursuant to the terms of the credit agreement, Tribute entered into a guaranty and collateral agreement granting the Company a security interest in substantially all of Tribute’s assets. The credit agreement contains certain affirmative and negative covenants. The obligations under the credit agreement to repay the loan may be accelerated upon the occurrence of an event of default under the credit agreement. 

 

SynCardia Credit Agreement

 

First Lien Credit Agreement

 

On December 13, 2013, the Company entered into a credit agreement pursuant to which the Company provided to SynCardia Systems, Inc. (“SynCardia”), a privately-held manufacturer of the world’s first and only FDA, Health Canada and CE (Europe) approved Total Artificial Heart, a secured term loan in the principal amount of $4,000,000. The loan was an expansion of SynCardia’s existing credit facility, resulting in a total outstanding amount under the existing credit facility of $16,000,000 at closing. At the lenders’ option, the lenders can increase the term loan to $22,000,000; the Company has the right but not the obligation to advance $1,500,000 of any potential increase. The Company funded the $4,000,000, net of an original issue discount of $60,000 and an arrangement fee of $40,000 at closing.

 

The loan matures on March 5, 2018, with principal due upon maturity. The loan bears interest at a rate of 13.5%.

 

Pursuant to the terms of the credit agreement and subject to a security agreement, SynCardia granted the lenders a first priority security interest in substantially all of its assets. The security agreement contains certain affirmative and negative covenants.

 

In the event of a change of control, a merger or a sale of all or substantially all of SynCardia’s assets, the loan shall be due and payable. The lenders will be entitled to certain additional payments in connection with repayments of the loan, both on maturity and in connection with a prepayment or partial prepayment. The obligations to repay the loan may be accelerated upon the occurrence of an event of default under the credit agreement.

 

In addition to the discount and arrangement fee, the Company is entitled to an exit fee upon the maturity of the loan, both of which will be accreted to interest income over the term of the loan. The Company recognized $170,000 and $500,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively.

 

Second Lien Credit Agreement

 

On December 13, 2013, the Company also entered into a second lien credit agreement, pursuant to which the Company and other lender parties thereto provided to SynCardia, a term loan in the principal amount of $10,000,000 (the “Second Lien Loan”). The Company provided $6,000,000 principal amount of the Second Lien Loan, funded at closing net of an origination fee of $90,000. The Second Lien Loan matures on December 13, 2021.  

 

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The Second Lien Loan shall be 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. Pursuant to the terms of the Second Lien Loan, SynCardia granted the lenders a second priority security interest in its assets subject to a security agreement, which contains certain affirmative and negative covenants.

 

In the event of a Change of Control, the Second Lien Loan shall be due, with the total amount payable to the lenders equal to a specified premium defined by the terms of the Second Lien Loan. The obligations to repay the Second Lien Loan may be accelerated upon the occurrence of an event of default under the terms of the Second Lien Loan.

 

The Company recognized $487,000 and $1,317,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively. The Company was issued 165,374 shares of Series F Preferred Stock of SynCardia, Inc. in lieu of cash payment of $230,000.

 

Private Dental Products Company

 

On December 10, 2013, the Company entered into a credit agreement to provide a private dental products company (“Dental Products Company”) a senior secured term loan with a principal amount of $6,000,000 funded upon close net of an arrangement fee of $60,000. The Loan matures on December 10, 2018.

 

Interest and principal under the loan will be paid by a tiered revenue interest that is charged on quarterly net sales and royalties of the Dental Products Company. Pursuant to the terms of the agreement, the Company was granted a first priority security interest in substantially all of the Dental Products Company’s assets. The loan accrues interest at the Libor Rate, plus an applicable margin; the Libor Rate is subject to minimum floor values such that that minimum interest rate is 14%.

 

In the event of a change of control, a merger or a sale of all or substantially all of the Dental Products Company’s assets, the loan shall be due and payable. The Company will be entitled to certain additional payments in connection with repayments, both on maturity and in connection with prepayments.

 

The Company also received a warrant to purchase up to 225 shares of Dental Products Company’s common stock, which if exercised, is equivalent to approximately four percent ownership on a fully diluted basis. The warrant expires December 10, 2020. The warrant is valued at zero at September 30, 2014, and December 31, 2013, in the unaudited condensed consolidated balance sheets.

 

In addition to the arrangement fee, the Company is entitled to an exit fee upon the maturity of the loan, both of which will be accreted to interest income over the term of the loan. The Company recognized $226,000 and $664,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively. 

 

Parnell Pharmaceuticals Holdings Pty Ltd

 

On January 23, 2014, the Company entered into a credit agreement pursuant to which the lenders party thereto provided to Parnell Pharmaceuticals Holdings Pty Ltd, a leading global veterinary pharmaceutical business (“Parnell”), a term loan in the principal amount of $25,000,000. The Company provided $10,000,000 and the Company’s investment advisory clients provided the remaining $15,000,000 of the loan. The Company serves as the Agent, Sole Lead Arranger and Sole Bookrunner under the credit agreement. The loan was repaid on June 27, 2014.

 

Parnell was obligated to make payments calculated on its quarterly net sales and royalties until such time as the lenders received a 2.0x cash on cash return. The revenue based payment was subject to certain quarterly and annual caps. Pursuant to the terms of the credit agreement, Parnell granted the lenders a first priority security interest in substantially all of Parnell’s assets.

 

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The Company recognized a syndication fee of $321,000 upon execution of the credit agreement and interest income of zero and $834,000 as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively.

 

Response Genetics

 

On July 30, 2014, the Company entered into a credit agreement pursuant to which the Company provided to Response Genetics, Inc. (“Response”) a term loan in the principal amount of $12,000,000. The loan matures on July 30, 2020. The Company provided $8,500,000 at closing. Response can draw down the remaining $3,500,000 of the credit facility at any time until December 31, 2015, if Response achieves certain revenue thresholds, and as long as it is in compliance with all covenants under the credit agreement.

 

Interest and principal under the loan will be paid by a tiered revenue interest that is charged on quarterly net sales and royalties of Response applied in the following priority: first, to the payment of all accrued but unpaid interest until paid in full; and second to the payment of all principal of the loans.

 

The loan shall accrue interest at the LIBOR rate, plus an applicable margin, subject to a 13.5% minimum. In addition, the Company earned an origination fee at closing, and the Company is entitled to an exit fee upon the maturity of the loan, both of which will be accreted to interest income over the term of the loan. The Company recognized approximately $190,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014.

 

In connection with the loan, Response also issued the Company a warrant to purchase 681,090 common shares at an exercise price of $0.94 per share, at any time prior to July 30, 2020 with an initial fair value of $379,000, which is included in other assets on the condensed consolidated balance sheets.

 

On September 9, 2014, the Company assigned to an investment management client approximately $3,500,000 of the total term loan commitment at par. The assignment included $2,500,000 previously funded to Response, and an unfunded commitment of approximately $1,000,000. In addition the Company assigned rights under the warrant to 200,321 common shares. The fair value of the transferred warrant rights at time of the assignment was $115,000.

 

The fair market value of the warrant held by the Company at September 30, 2014 was $228,000, and is included in other assets in the unaudited condensed consolidated balance sheets. An unrealized holding loss of $36,000 was included in interest and other income (expense), net in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014. The Company determined the fair value of the warrants outstanding at September 30, 2014, using the Black-Scholes option pricing model with the following assumptions:

 

   September 30, 2014
Average Dividend rate   0%
Average Risk-free rate   2.2%
Average Expected life (years)   5.8 
Average Expected volatility   88%

 

Royalty Purchases

 

Bess Royalty Purchase

 

On April 2, 2013, the Company, along with Bess Royalty, LP (“Bess”), purchased a royalty stream paid on the net sales of Besivance®, an ophthalmic antibiotic, from InSite Vision, Inc. Besivance® is marketed globally by Bausch & Lomb. The initial purchase price totaled $15,000,000; the Company funded $6,000,000 of the purchase price at closing to own 40.3125% of the royalty stream. Additional contingent consideration includes (i) $1,000,000 to be paid by Bess upon certain net sales milestones achieved by Bausch & Lomb and (ii) annual payments to be remitted to InSite Vision, Inc. once aggregate royalty payments received by the Company and Bess exceed certain thresholds. Bess paid the $1,000,000 contingent consideration in February 2014, which did not result in a change in the Company’s interest in the royalty. The purchased royalty stream does not include any further amounts once the aggregate royalty payments received by the Company and Bess reach a certain threshold as defined in the underlying agreement. As the purchased royalty stream has been capped by the defined threshold amount, in effect limiting the Company’s implicit rate of return, the Company’s share of the purchase price has been reflected as a Finance Receivable in the unaudited condensed consolidated financial statements. The Company recognized approximately $222,000 and $745,000 in interest income in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively.  The Company recognized approximately $257,000 and $517,000 in interest income in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2013.

  

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Tissue Regeneration Therapeutics Royalty Purchase

 

On June 12, 2013, the Company purchased from Tissue Regeneration Therapeutics, Inc. (“TRT”) two royalty streams derived from the licensed use of TRT’s technology in the family cord banking services sector. The initial purchase totaled $2,000,000 paid upon closing. On October 20, 2014, additional consideration of $1,250,000 was paid upon aggregate royalty payments reaching a certain threshold. Additional contingent consideration includes annual sharing payments due to TRT once aggregate royalty payments received by the Company exceed the purchase price paid by the Company. The purchased royalty stream does not include any further amounts once the aggregate royalty payments received by the Company reach a certain threshold as defined in the underlying agreement. The purchase has been reflected as a Finance Receivable in the unaudited condensed consolidated financial statements. The Company recognized approximately $92,000 and $270,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively, and $88,000 for the three and nine months ended September 30, 2013

 

Cambia® Royalty Purchase

 

On July 31, 2014, the Company purchased 25% of a royalty stream paid on the net sales of Cambia®, an NSAID pharmaceutical product indicated for the treatment of migraine. Cambia® is marketed in the United States by Depomed, Inc. and in Canada by Tribute. The initial purchase price totaled $4,000,000. Additional contingent consideration includes (i) $500,000 to be paid by the Company to the seller upon Cambia® reaching certain net sales and (ii) annual sharing payments to be remitted to the seller once aggregate royalty payments received by the Company exceed certain thresholds. The purchased royalty stream does not include any further amounts once the aggregate royalty payments received by the Company reach a certain threshold as defined in the purchase agreement. The Company recognized approximately $153,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014.

 

Credit Quality of Finance Receivables 

 

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 all 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. 

 

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.

 

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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.

 

The Company monitors the credit quality indicators of performing and non-performing assets. At September 30, 2014 and December 31, 2013, the Company did not have any non-performing assets.

  

Note 3. Marketable Investments

 

Investment in securities at September 30, 2014, and December 31, 2013 consist of the following:

 

   September 30,
2014
  December 31,
2013
Available for sale securities  $3,119   $3,119 
Equity securities   1,730    —   
   Total  $4,849   $3,119 

 

Debt Security

 

Senior Secured Note

 

On July 9, 2013, the Company entered into a note purchase agreement to purchase, at par, $3,000,000 of a total $100,000,000 aggregate principal amount offering of a Senior Secured notes due in November 2026.  The notes pay interest quarterly at a rate of 11.5% per annum commencing November 15, 2013. The agreement allows the first interest payment date to include paid-in-kind notes for any cash shortfall, of which the Company received $119,000 on November 15, 2013.  Subsequent interest payments from February 15, 2014, through May 15, 2015, are supported by a cash interest reserve account funded at close of $4,500,000.  The notes are subject to redemption on or after July 10, 2015, at a price at or above par, as defined.  The notes are secured only by certain royalty and milestone payments associated with the sales of pharmaceutical products. The notes are reflected at fair value as Available-for-sale securities. The Company recognized approximately $91,000 and $269,000 in interest income recorded as revenue in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014. The Company recognized approximately $79,000 in interest income recorded as revenue for the three and nine months ended September 30, 2013.

 

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale securities as of September 30, 2014 and December 31, 2013, 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 

 

Equity Securities

 

SynCardia Series F Preferred Stock

 

On September 15, 2014, the Company purchased a total of 1,244,511 shares of Series F Preferred Shares of SynCardia at price of $1.39 per share, including 165,374 shares which were received in lieu of cash payment for $230,000 in interest income on the second lien loan. The Company’s total investment in SynCardia at September 30, 2014 was $1,730,000. The holders of the preferred shares are entitled to vote on all matters upon which holders of common shares have the right to vote and have representation on SynCardia’s Board of Directors. The preferred shares can be converted into common shares at any time after the date of issuance, and are automatically converted into common shares upon the closing of a public offering. The preferred shares will entitle the holder to receive a dividend at annual rate of ten percent and will accrue whether or not declared by SynCardia’s Board of Directors, and whether or not actually paid. No dividend will be declared or paid on any common shares unless simultaneously there also is declared or paid, a dividend on the preferred shares. Dividends accrued will be payable in cash or stock as determined, (i) upon the voluntary or involuntary conversion of the preferred shares, (ii) upon redemption thereof, or (iii) upon the occurrence of the liquidation or dissolution of the affairs of SynCardia.

 

Common Stock Purchase

 

In conjunction with the first lien secured term loan with SynCardia, Inc., the Company purchased from SynCardia an aggregate of 40,000 shares of SynCardia’s Common Stock, in consideration for the mutual covenants and agreements set forth in the credit agreement. The shares purchased by the Company reflect an ownership percentage in SynCardia of less than 0.05%. The Company deems the shares to not have a readily determinable fair value. SynCardia is privately held and in development stage. The Company has reflected the shares at a zero cost basis as of September 30, 2014, and December 31, 2013

 

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During the nine months ended September 30, 2014 and the year ended December 31, 2013, the Company had no sales of available-for-sale securities and no securities have been considered impaired.

 

Note 4. 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 the 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 receives a 1x cash on cash return on its interest in Holmdel, SWK HP will receive 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 84%.  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 and nine months ended September 30, 2014, the Company recognized $1,769,000 and $4,465,000 of equity method gains, respectively. The amount of equity method gains attributable to the non-controlling interests in SWK HP were $944,000 and $2,378,000 for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, the Company recognized $627,000 and $1,042,000, respectively, of equity method gains. The amounts attributable to the non-controlling interests were $329,000 and $543,000, respectively for the three and nine months ended September 30, 2013.

 

 C: 
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In addition, SWK HP received cash distributions totaling $5,543,000 during the nine months ended September 30, 2014, of which $2,958,000 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 nine months ended September 30, 2014, are as follows (in thousands):  

   

Balance at December 31, 2013  $10,425 
      
Add: Income from investments in unconsolidated entities   4,465 
      
Less: Cash distribution on investments in unconsolidated entities   (5,543)
      
Balance at September 30, 2014  $9,347 

     

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 September 30,
2014
(in millions)
      Three months ended
September 30, 2014
(in millions)
  Nine months ended
September 30, 2014
(in millions)
                 
  Assets     $ 13.1     Net Revenue   $ 2.8     $ 8.1  
  Liabilities     $ 2.5     Expenses   $ 0.7     $ 2.8  
  Equity     $ 10.6     Net income   $ 2.1     $ 5.3  

 

    As of September 30,
2013
(in millions)
      Three months ended
September 30, 2013
(in millions)
  Nine months ended
September 30, 2013
(in millions)
                 
  Assets     $ 12.5     Net Revenue   $ 4.3     $ 8.3  
  Liabilities     $ 0.0     Expenses   $ 3.6     $ 7.1  
  Equity     $ 12.5     Net income   $ 0.7     $ 1.2  

 

Note 5. Loan Credit Agreement with Related Party

 

The Company entered into a credit facility with an affiliate of a stockholder on September 6, 2013. 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 average interest rate for the period the facility was outstanding during the nine months ended September 30, 2014, was 6.73%. 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 Company executed a draw of $5,000,000 on December 9, 2013. During the nine months ended September 30, 2014, the Company executed additional draws totaling $6,000,000 and then utilized net proceeds received from the Shareholder Equity Investment discussed in Note 6, to pay down the $11,000,000 outstanding balance of the credit facility. The balances of $0 and $5,000,000 are reflected as Loan credit agreement in the unaudited condensed consolidated balance sheet as of September 30, 2014 and December 31, 2013, respectively. On or before the last day of the Draw Period, the Company can request the loan amount to be increased to $30 million upon the Company realizing net proceeds of at least $10 million in cash through the issuance of new equity securities; the Shareholder Equity Investment discussed in Note 6 fulfilled this requirement and as a result the Company has $19,000,000 of availability remaining on the facility. The stockholder’s affiliate, as 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 stockholder’s affiliate for 1,000,000 shares of the Company’s common stock at a strike price of $1.3875. In connection with the credit agreement, the Company and the stockholder and certain of the stockholder’s affiliates, including the lender 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.

 

 C: 
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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 $536,000 and $292,000 at September 30, 2014, and December 31, 2013, are reflected as a warrant liability in the unaudited condensed consolidated balance sheet. Unrealized losses of $219,000 and $244,000 were included in interest and other income (expense) in the unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2014, respectively. The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

 

   September 30, 2014  December 31, 2013
Dividend rate   0%   0%
Risk-free rate   2.2%   2.5%
Expected life (years)   5.9    6.7 
Expected volatility   32.4%   27.0%

 

During the three and nine months ended September 30, 2014, the Company recognized interest expense totaling $141,000 and $553,000, respectively. Interest expense included $36,000 and $107,000 of debt issuance cost amortization for the three and nine months ended September 30, 2014, respectively.

 

As of November 14, 2014, no amounts were outstanding under the credit facility.

 

Note 6. Stockholders’ Equity

 

Shareholder Equity Investment

 

On August 18, 2014, the Company entered into a Securities Purchase Agreement with Carlson Capital, L.P. (“Carlson”). Pursuant to the terms of the securities purchase agreement, funds affiliated with Carlson (collectively the “Stockholder”) acquired 55,908,000 newly issued shares of the Company’s common stock, par value $0.001 per share for a purchase price of $1.37 per share or an aggregate purchase price of $76,594,000 (the “Initial Closing”). The Company incurred issuance costs of $2,095,000 in relation to this transaction, which made the net proceeds $74,499,000.

 

The securities purchase agreement provides that the Company will conduct a rights offering as promptly as reasonably practical after the closing of the securities purchase agreement. The rights offering will be on the terms set forth in the registration statement on Form S-1 filed by the Company with the SEC on February 13, 2014, as the same has been (and as it may be) amended and supplemented, and which was declared effective by the SEC on October 26, 2014. The Stockholder will have the right to participate in the rights offering on the same terms as all other stockholders, including with respect to the subscription price. However, the Stockholder agreed that they would exercise only that number of rights they receive in the rights offering which represents the number of rights they would have received if the rights had been distributed on the day immediately preceding the Initial Closing.

 

An affiliate of the Stockholder, has agreed to serve as the standby purchaser with respect to the rights offering and will generally have the right to purchase any unsubscribed rights, (other than rights the Stockholder have agreed not to exercise as described above).

 

The securities purchase agreement further provides that, following the consummation of the rights offering, the Stockholder will purchase a number of newly issued additional shares of common stock such that (after taking into account the Initial Closing and the closing of the rights offering, including any shares of common stock purchased by the Stockholder and its affiliates in the rights offering, including as standby purchaser) the Stockholders’ and its affiliates’ voting percentage of common stock equals 69% on a fully-diluted basis.

 

In connection with the securities purchase agreement, the Company and the Stockholder entered into a stockholders’ agreement, pursuant to which, among other things, the Company granted the Stockholder approval rights with respect to certain transactions including with respect to the incurrence of indebtedness over specified amounts, the sale of assets over specified amounts, declaration of dividends, loans, capital contributions to or investments in any third party over specified amounts, changes in the size of the board of directors or changes in the Company’s CEO. In addition, the Stockholder agreed that until the earlier of the fifth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of the Company’s common stock it will not increase its voting percentage to greater than 76% or cause the Company to engage in any buybacks in excess of 3% of the then outstanding shares of common stock without offering to acquire all of the then-outstanding common stock at the same price and on the same terms and conditions. The Stockholder further agreed that, until the earlier of the fifth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of common stock, it will not sell shares of common stock to any purchaser that would result in such purchaser having a voting percentage of common stock in excess of 40% unless the purchaser contemporaneously makes a binding offer to acquire all of the then-outstanding common stock of the Company, at the same price and on the same terms and conditions as the purchase of shares from the Stockholder. The Stockholder also agreed that, until the earlier of the eighth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of common stock, the Stockholder will not engage in a transaction as described in Rule 13e-3 under the Securities Exchange Act of 1934, as amended, without offering to acquire all of the then-outstanding common stock at the same price and on the same terms and conditions. Additionally, until the earlier of the eighth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of common stock, the Stockholder agrees to maintain at least two directors who are not affiliates of the Stockholder or the Company (the “Non-Affiliated Directors”), and agrees that any related party transaction or deregistration of the Common Stock from SEC reporting requirements requires the approval of the Non-Affiliated Directors. The stockholders’ agreement also contains a right for the Stockholder to serve as the exclusive standby purchaser for any additional rights offerings prior to September 6, 2016, and a pre-emptive right to purchase its pro rata share of any additional offerings other than such rights offerings by the Company prior to such date.

 

 C: 
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The stockholders agreement also provides that, until the second anniversary of the Initial Closing, the Company will not seek, negotiate or consummate any sale of common stock, except through one or more rights offerings substantially on the same structural terms as the rights offering. In addition, the Stockholder agreed that until the earlier of the fifth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of common stock, it would provide support to the Company in various ways, including with respect to sourcing financing and other business opportunities.

 

In connection with the transactions described above, the Company amended its Second Amended and Restated Rights Agreement to designate the Stockholder and its affiliates as Exempt Persons (as defined in the rights agreement) unless they own more than 76% of the outstanding shares of common stock.

 

In connection with the transactions, the Voting Agreement by and among the Stockholder and the Company dated September 6, 2013 was terminated.

 

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 September 30, 2014, under the 1999 Stock Incentive Plan are those held by some of the Company’s former 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.

 

 C: 
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On August 18, 2014, the Company entered into new employment agreements with J. Brett Pope and Winston L. Black. In conjunction with the new employment agreements, each received an option grant for 1,000,000 shares with an exercise price of $1.37 per share. Fifty percent of the options vest annually over 4 years beginning December 31, 2015 and fifty percent vest if the 30-day average closing stock price exceeds $2.06 prior to December 31, 2018. In addition, the options granted to Messrs. Pope and Black on May 14, 2012 were modified to extend the termination date of the options from May 14, 2017 to December 31, 2018. As a result, the Company remeasured these grants as of August 18, 2014. The modification resulted in incremental value of $151,500, with $24,000 being expensed during the three months ended September 30, 2014.

 

The following table summarizes activities under the 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, 2013     1,680,000     $ 1.01       7.8     $ 458,600  
Options cancelled and retired     (10,000 )     2.65                  
Options exercised     —         —                    
Options granted     2,000,000       1.37                
Balances, September 30, 2014     3,670,000     $ 1.20       8.6     $ 1,109,200  
                                 
Options vested and exercisable and expected to be vested and exercisable at September 30, 2014     3,380,000     $ 1.20       8.6     $ 1,048,500  
Options vested and exercisable at September 30, 2014     545,000     $ 1.36       6.1     $ 251,700  

 

At September 30, 2014, 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 September 30, 2014, there were 2.7 million shares reserved for equity awards under the 2010 Stock Incentive Plan and the Company had approximately $0.8 million of total unrecognized stock option expense, net of estimated forfeitures, which will be recognized over the weighted average remaining period of 2.2 years. 

 

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2014:

 

        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       4.8     $ 0.70       20,000     $ 0.70
    0.83       1,500,000       7.7       0.83       375,000       0.83
    1.24       20,000       3.8       1.24       20,000       1.24
    1.37       2,000,000       9.9       1.37       —         1.37
    2.67       20,000       2.8       2.67       20,000       2.67
    2.95       90,000       1.9       2.95       90,000       2.95
    3.50       20,000       2.4       3.50       20,000       3.50
    Total       3,670,000       8.6     $ 1.20       545,000     $ 1.36

 

Employee stock-based compensation expense recognized for time-vesting options for the three and nine months ended September 30, 2014, and 2013, 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.

 

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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. 

 

On January 31, 2012, the Board approved a change in the compensation plan for non-employee directors. In lieu of cash payments historically paid to the Company’s directors for Board service, the Board approved an annual grant of 35,000 shares of restricted common stock for each of our non-executive Board members on January 31 of each year, starting with 2012. The restricted shares fully vest on the first anniversary of the grant and are forfeited if the Board member does not complete the full year of service, subject to certain exceptions.

 

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, 2013     1,665,000     $ 0.39  
Shares cancelled and forfeited     —         —    
Shares vested     (680,000 )     0.83  
Shares granted     140,000       1.13  
Balances, September 30, 2014     1,125,000     $ 0.45  

  

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. As a result of the Initial Closing, 540,000 shares of restricted stock vested pursuant to the terms of the Company’s 2010 Stock Incentive Plan. As a result, the Company recognized $545,000 of expense during the three months ended September 30, 2014. The remaining 1,125,000 restricted shares are included in the Company’s shares outstanding as of September 30, 2014, 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 September 30, 2014.

 

The stock-based compensation expense recognized by the Company for the three and nine months ended September 30, 2014, was $617,000 and $755,000, respectively. The stock-based compensation expense recognized by the Company for the three and nine months ended September 30, 2013 was $71,000 and $203,000, respectively.

 

Non-controlling Interests

 

As discussed in Note 4, SWK HP has a limited partnership interest in Holmdel. The total investment by SWK HP was $13,000,000, of which SWK Holdings GP provided $6,000,000.  The remaining $7,000,000 is reflected as non-controlling interest in the unaudited condensed consolidated balance sheets.   Changes in the carrying amount of the non-controlling interest in the unaudited condensed consolidated balance sheet for the nine months ended September 30, 2014, are as follows:  

 

Balance at December 31, 2013  $5,613 
Add: Income attributable to non-controlling interests   2,378 
Less: Cash distribution to non-controlling interests   (2,958)
Balance at September 30, 2014  $5,033 

 

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Note 7. 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 nine months ended September 30, 2014 and 2013.

 

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 their unaudited condensed consolidated balance sheets at September 30, 2014 or December 31, 2013.

 

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 Warrant Liability 

 

Debt securities 

 

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.

 

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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 September 30, 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:                    
Tribute warrants  $385   $—     $—     $385 
Response Genetics warrant   228              228 
Available-for-sale securities   3,119    —      3,119    —   
                     
Financial Liabilities:                    
Warrant liability  $536   $—     $—     $536 

 

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 (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:                    
Tribute warrant  $204   $—     $—     $204 
Available-for-sale securities   3,119    —      3,119    —   
                     
Financial Liabilities:                    
Warrant liability  $292   $—     $—     $292 

 

The changes on the value of the Tribute and Response Genetics warrants during the nine months ended September 30, 2014, were as follows (in thousands):

 

Fair value – December 31, 2013  $204 
Issuances   478 
Assignment   (115)
Change in fair value   46 
Fair value – September 30, 2014  $613 

  

The changes on the value of the warrant liability during the nine months ended September 30, 2014, were as follows (in thousands):

 

Fair value – December 31, 2013  $292 
Issuances   —   
Change in fair value   244 
Fair value – September 30, 2014  $536 

 

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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 nine months ended September 30, 2014 and December 31, 2013.

 

The following information as of September 30, 2014 and December 31, 2013, 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.

 

September 30, 2014  Carry
Value
  Fair
Value
  Level 1  Level 2  Level 3
Financial Assets                         
Cash and cash equivalents  $69,183   $69,183   $69,183   $—     $—   
Finance receivables   41,466    41,505    —      —      41,505 
Marketable investments   4,849    4,849    —      3,119    1,730 
Other assets   613    613    —      —      613 
                          
Financial Liabilities                         
Warrant liability  $536   $536   $—     $—     $536 

 

December 31, 2013  Carry
Value
  Fair
Value
  Level 1  Level 2  Level 3
Financial Assets               
Cash and cash equivalents  $7,664   $7,664   $7,664   $—     $—   
Finance receivables   29,286    29,324    —      —      29,324 
Marketable investments   3,119    3,119    —      3,119    —   
Other assets   204    204    —      —      204 
                          
Financial Liabilities                         
Warrant liability  $292   $292   $—     $—     $292 

 

Note 8. 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 September 30, 2014, and December 31, 2013.

 

As of December 31, 2013, the Company’s valuation allowance against deferred tax assets decreased by approximately $20,960,000 due to write off of expired deferred tax assets and partial release of the Company’s valuation allowance.

 

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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 statements of income for the period that the adjustment is determined to be required.

  

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

 

   September 30,  December 31,
   2014  2013
Deferred tax assets          
Credit carryforward  $2,660   $2,660 
Stock based compensation   287    287 
Other   59    59 
Net operating losses   144,839    146,637 
           
Gross deferred tax assets   147,845    149,643 
Valuation allowance   (139,840)   (139,840)
Net deferred tax assets  $8,005   $9,803 

 

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 NOLs, pertains to NOL carryforwards resulting from tax deductions upon the exercise of employee stock options of approximately $1,800,000. 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 September 30, 2014, the Company had net operating loss carryforwards for federal income tax purposes of approximately $426,000,000. 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 9. Subsequent Events

 

Tribute

 

On October 1, 2014, the Company and Tribute amended the credit agreement to increase the secured term loan total commitment to $17,000,000 from $8,000,000, with $6,000,000 of the additional amount funded at the time of the amendment. The unfunded commitment under the loan is currently $3,000,000.

 

In conjunction with the credit agreement amendment, Tribute issued an additional warrant to the Company to purchase 740,000 common shares with an exercise price of $0.70 per share that may be exercised at any time prior to October 1, 2019.

 

ABT Molecular Imaging, Inc.

 

On October 10, 2014, the Company entered into a credit agreement pursuant to which the Company provided to ABT Molecular Imaging, Inc. (“ABT”) a second lien term loan in the principal amount of $10,000,000. The loan matures on October 8, 2021.

 

ABT is obligated to make payments calculated on its quarterly net sales and royalties until such time as the lenders receive a 2.0x cash on cash return. The revenue-based payment is subject to certain quarterly and annual caps. The total amount payable is subject to adjustment under certain events including qualified partial payments, a change of control or full prepayment of the loan. The revenue-based payment is made quarterly.

 

Pursuant to the terms of the credit agreement, ABT granted the lenders a second priority security interest in substantially all of its assets. The credit agreement contains certain affirmative and negative covenants. The obligations to repay the loan may be accelerated upon the occurrence of an event of default under the terms of the credit agreement.

 

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In connection with the loan, ABT also issued the Company 5,000,000 common share purchase warrants with each warrant entitling the Company to acquire one common share in the capital of ABT at an exercise price of US$0.20, at any time prior to October 10, 2034.

 

PDI, Inc.

 

On October 31, 2014, the Company entered into a credit agreement among pursuant to which the Company provided to PDI, Inc. (“PDI”) a term loan in the principal amount of $20,000,000. The loan matures on October 31, 2020.

 

Interest and principal under the loan will be paid by a tiered revenue interest that is charged on quarterly net sales and royalties of PDI applied in the following priority first, to the payment of all accrued but unpaid interest until paid in full; second to the payment of all principal of the loans. Beginning in January 2017, PDI will be required to make principal payments on the loan. Additionally, beginning in January 2017 and ending on October 31, 2020, subject to a quarter cap, the Company will be entitled to receive quarterly revenue-based payments from PDI equal to 1.25% of revenue derived from net sales of molecular diagnostics products.

 

In addition, the Company earned a $300,000 origination fee at closing, and the Company is entitled to an exit fee upon the maturity of the loan, both of which will be accreted to interest income over the term of the loan.

 

Pursuant to the terms of the credit agreement, PDI entered into a guarantee granting the Company a security interest in substantially all of their respective assets. The credit agreement contains certain affirmative and negative covenants. The obligations under the credit agreement to repay the loan may be accelerated upon the occurrence of an event of default under the credit agreement.

 

Rights Offering

 

On November 3, 2014, the Company commenced a rights offering. Stockholders of record as of October 30, 2014, will be eligible to participate in the rights offering. Pursuant to the rights offering, holders of shares of common stock will receive non-transferable rights to purchase newly issued shares of common stock of the Company. Each subscription right will entitle stockholders to purchase 0.345662431 shares of common stock of the Company at a subscription price of $0.86 per share. If the rights offering is fully subscribed, the Company will issue approximately 14,534,884 shares and receive gross proceeds of approximately $12.5 million. Carlson has agreed to act as a standby purchaser, and under certain circumstances, to acquire shares not subscribed for in the rights offering. The rights offering is scheduled to expire on November 24, 2014, unless extended.

 

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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, 2013 (“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 December 2009, we sold substantially all of our assets to an unrelated third party, the Asset Sale. Since the date of the Asset Sale, we had been seeking to redeploy our cash to maximize value for our stockholders and were seeking, analyzing and evaluating potential acquisition candidates. Our goal was to redeploy our existing assets to acquire, or invest in, one or more operating businesses with existing or prospective taxable income, or from which we can realize capital gains, that can be offset by use of our net operating loss carryforwards (“NOLs”).

 

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 by raising additional third party capital to be invested alongside our capital.

 

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.

 

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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.

 

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 raise 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 $20 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.

 

Execution of New Strategy

 

In the third quarter of 2012, we purchased an interest in three revenue-producing investment advisory client contracts from PBS Capital Management, LLC, a firm that our current chief executive officer, or CEO, and our current Managing Director control, for $150,000 plus earn out payments through 2016. Our interest in these contracts can be repurchased, for one dollar, by PBS Capital Management, LLC, in the event that the employment contracts of our current CEO and current Managing Director are not renewed. We generated approximately $8,000 and $41,000 for the three months ended September 30, 2014, and 2013, respectively, in revenue due to our interest in the advisory contracts. We generated approximately $146,000 and $140,000 for the nine months ended September 30, 2014, and 2013, respectively, in revenue due to our interest in the advisory contracts. Going forward, we expect revenue generated from these contracts to be immaterial to our financials; however, we expect the investment advisory clients to continue to co-invest with us in future transactions.

 

On December 5, 2012, we consummated our first transaction under our specialty finance strategy by providing a $22.5 million term loan to Nautilus. The loan was repaid on December 17, 2013. Prior to repayment, interest and principal under the loan was paid by a tiered revenue interest that is charged on quarterly net sales and royalties of the borrower applied in the following priority (i) first, to the payment of all accrued but unpaid interest until paid in full; and (ii) second to the payment of all principal of the loans. The loan accrued interest at either a base rate or the LIBOR rate, as determined by the borrower, plus an applicable margin; the base rate and LIBOR rate were subject to minimum floor values such that the minimum interest rate was 16%. We syndicated $16 million of the loan to our investment advisory clients and retained the remainder. Upon repayment, we received our proportionate share of a $2,000,000 exit fee which amounted to $578,000.

 

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As of November 14, 2014, we have executed 15 transactions under our new strategy, deploying approximately $106,480,000 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;

 

  $82,500,000 in nine 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 six of the transactions we participated alongside other investors; our investment advisory clients co-invested in two of these transactions. We completed the other five transactions by ourselves. Subsequent to closing Response Genetics, however, we syndicated a portion of the loan to an investment advisory client.

 

The table below provides an overview of the transactions.

 

a
 

Amount

Funded by

SWKs as of
November 14, 2014

Total
Transaction

Amount

(including

contingent

consideration)

Material Terms Income Recognized during
the three and nine months ended
September 30, 2014
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

$222,000 and $745,000 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

·        $1,250,000 additional consideration paid to TRT on October 20, 2014, upon reaching aggregate royalty payments threshold

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

$92,000 and $270,000 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

·        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

$153,000 interest income

 

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Amount

Funded by

SWK as of
November 14, 2014

Total
Transaction

Amount

(including

contingent

consideration)

Material Terms Income Recognized during
the three and nine months ended
September 30, 2014
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

$91,000 and $269,000 in interest income
         
Term Loans      
         
Tribute Pharmaceuticals Canada Inc. (“Tribute”) $14,000,000 $17,000,000

·        Closed $8,000,000 on August 8, 2013

·        Entered into senior secured first lien loan that matures on August 8, 2018

·        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 1,103,222 warrants to purchase shares of Tribute common stock

·        On October 1, 2014, credit agreement amended to increase total commitment to $17,000,000 from $8,000,000, with $6,000,000 funded at the time of the amendment. Received warrant to purchase additional 740,000 shares of common stock.

$307,000 and $868,000 in interest income
         
SynCardia Systems, Inc. (“SynCardia”) $4,000,000 $16,000,000

·        Closed on December 13, 2013

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

·        At the option of the lenders, the term loan can be increased to $22,000,000; we have the right but not the obligation to advance $1,500,000 under the expansion facility

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

·        Original issue discount of $60,000 and an arrangement fee of $40,000 paid to us at closing

·        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%

$170,000 and $500,000 in interest income
         
SynCardia $6,000,000 $10,000,000

·        Closed on December 13, 2013

·        Entered into senior secured second lien loan which matures on December 13, 2021

·        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

·        Earned origination fee of $90,000 at closing

$487,000 and $1,317,000 in interest income

 

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Amount

Funded by

SWK as of
November 14, 2014

Total
Transaction

Amount

(including

contingent

consideration)

Material Terms Income Recognized during
the three and nine months ended
September 30, 2014
Private Dental Products Company (the “Dental Products Company”) $6,000,000 $6,000,000

·        Closed 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 $60,000 at closing

·        We are entitled to an exit fee upon the maturity of the loan

·        Received a warrant to purchase up to 225 shares in the Dental Products Company’s common stock, which if exercised, is equivalent to approximately four percent ownership on a fully diluted basis. The warrant expires December 10, 2020

$226,000 and $664,000 in interest income
         
Parnell Pharmaceuticals Holdings Pty Ltd (“Parnell”) $25,000,000

·        Closed $10,000,000 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 $375,000 origination fee at closing

$0 and $834,000 in interest income $321,000 in syndication income
         
Response Genetics, Inc. (“Response”) $6,000,000 $12,000,000

·        Closed on July 30, 2014, funding $8,000,000.

·        On September 9, 2014, participated out to an investment management client $3,500,000, of which $2,500,000 was previously funded to Response.

·        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

·        Response can draw down another $3,500,000 by YE15 if it meets a certain revenue threshold.

$190,000 interest income
         

ABT Molecular Imaging, Inc. (“ABT”)

$10,000,000 $10,000,000

·        Closed October 10, 2014

·        Entered into senior secured second lien loan 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 5,000,000 shares of ABT common stock

No Income
         

PDI, Inc. (“PDI”)

$20,000,000 $20,000,000

·        Closed on October 31, 2014

·        Entered into senior secured first lien loan 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

No Income
         
Other        
         
         

Holmdel Pharmaceuticals, LP (“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 Holdings LP (“SWK LP”)

·        SWK LP acquired a direct limited partnership interest in Holmdel

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

$1,769,000 and $4,465,000, respectively, of equity method gains, of which $944,000 and $2,378,000, respectively were attributable to the non-controlling interest in SWK
         

SynCardia

$1,730,000 Up to $15,000,000

·        Closed September 15, 2014

·        Acquired 1,244,511 shares of Series F Preferred Stock

·        Automatically converts into common shares upon the closing of a public offering

·        Entitles holder to receive dividend at annual rate of ten percent

No Income
         

 

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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, 2013, filed with the Securities and Exchange Commission on March 31, 2014. 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, 2014, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, (“ASU 2014-09”), “Revenue from Contracts with Customers”. The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. We are currently evaluating the new guidance and have not determined the impact this standard may have on our consolidated financial statements nor decided upon the method of adoption.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2015. We are currently evaluating the impact that the adoption of this guidance will have on our consolidated financial statements.

 

Revenues

 

SWK generated revenues of $3.7 million for the three months ended September 30, 2014, driven primarily by $1.9 million in interest and fees earned on our finance receivables and $1.8 million in income related to our investment in an unconsolidated partnership. SWK generated revenues of $10.7 million for the nine months ended September 30, 2014, driven primarily by $5.9 million in interest and fees earned on our finance receivables and $4.5 million in income related to our investment in an unconsolidated partnership.

 

SWK generated revenues of $1.6 million for the three months ended September 30, 2013, driven by $0.8 million in interest and fees earned on our finance receivables and $0.6 million in income related to our investment in unconsolidated partnerships. SWK generated revenues of $3.0 million for the nine months ended September 30, 2013, driven by $1.7 million in interest and fees earned on our finance receivables and $1.0 million in income related to our investment in unconsolidated partnerships.

 

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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 by 144% to $1.1 million for the three months ended September 30, 2014, from $0.5 million for the three months ended September 30, 2013, due primarily to increased professional fees and compensation expense. Approximately $0.5 million of the increase in compensation expense was due to accelerated vesting of equity compensation triggered by the consummation of the purchase agreement transaction. Despite the increase, as a percentage of revenue, general and administrative expenses remained unchanged at 30% between the three months ended September 30, 2014 and 2013. General and administrative expenses increased by 99% to $2.5 million for the nine months ended September 30, 2014, from $1.3 million for the nine months ended September 30, 2013, due to increased professional fees and compensation expense. As a percentage of revenue, general and administrative expenses decreased to 24% for the nine months ended September 30, 2014 compared to 43% for the nine months ended September 30, 2013

 

Interest and Other Income (Expense), Net

 

Interest and other income (expense), net was an expense of approximately $0.7 million for the three months ended September 30, 2014, which consisted primarily of an approximately $0.6 million fair market value loss relating to the Tribute and Response Genetics warrants and to our warrant liability, and interest expense of approximately $0.1 million relating to our loan credit agreement. During the three months ended September 30, 2013, interest and other income (expense), net was an expense of approximately $0.1 million, which consisted primarily of an approximately $0.1 million fair market value loss relating to the Tribute warrant and to our warrant liability.

 

Interest and other income (expense), net was an expense of approximately $0.7 million for the nine months ended September 30, 2014, which consisted primarily of an approximately $0.2 million fair market value loss relating to the Tribute and Response Genetics warrants and to our warrant liability, and interest expense of approximately $0.6 million relating to our loan credit agreement. During the nine months ended September 30, 2013, interest and other income (expense), net was an expense of approximately $0.1 million, which consisted primarily of an approximately $0.1 million fair market value loss relating to the Tribute warrant and to our warrant liability, and a nominal amount of interest expense relating to our loan credit agreement, offset by interest income on cash.

 

Provision for Income Taxes

 

SWK 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.” As of December 31, 2013, SWK concluded that it is more likely than not that the Company will be able to realize approximately $9,803,000 benefit of the U.S. federal and state deferred tax assets in the future.

 

As of September 30, 2014, SWK had net operating loss carryforwards for federal income tax purposes of approximately $426,000,000. The federal net operating loss carry forwards if not offset against future income, will expire by 2032, with the majority expiring by 2021.

 

Liquidity and Capital Resources

 

As of September 30, 2014, SWK had $69.2 million in cash and cash equivalents compared to $7.7 million in cash and cash equivalents as of December 31, 2013. As of September 30, 2014, we had working capital of $70.8 million, compared to working capital of $8.7 million as of December 31, 2013.

 

On August 18, 2014, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Carlson Capital, L.P. (“Carlson”). Pursuant to the terms of the Purchase Agreement, on August 18, 2014, funds affiliated with Carlson (collectively, the “Stockholder”) acquired 55,908,000 newly issued shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) for a purchase price of $1.37 per share or an aggregate purchase price of $76,594,000 (the “Initial Closing”). The company included issuance costs of $2,095,000 in relation to this transaction, which made the net proceeds $74,499,000.

 

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The Purchase Agreement provides that the Company will conduct a rights offering (the “Rights Offering”) as promptly as reasonably practical after the closing of the Purchase Agreement. The Rights Offering will be on the terms set forth in the registration statement on Form S-1 filed by the Company with the SEC on February 13, 2014, as the same has been (and as it may be) amended and supplemented (including each amendment and supplement thereto, the “Registration Statement”), which Registration Statement was declared effective by the SEC on October 26, 2014. The Stockholder will have the right to participate in the Rights Offering on the same terms as all other stockholders, including with respect to the subscription price. However, the Stockholder agreed that they would exercise only that number of rights they receive in the Rights Offering which represents the number of rights they would have received if the rights had been distributed on the day immediately preceding the Initial Closing.

 

Double Black Diamond, L.P., an affiliate of the Stockholder, has agreed to serve as the standby purchaser with respect to the Rights Offering and will generally have the right to purchase any unsubscribed rights, (other than rights the Stockholder have agreed not to exercise as described above).

 

The Company commenced the Rights Offering on November 3, 2014 and the Rights Offering expires on November 24, 2014, unless extended.

 

The Purchase Agreement further provides that, following the consummation of the Rights Offering, the Stockholder will purchase a number of newly issued additional shares of Common Stock such that (after taking into account the Initial Closing and the closing of the Rights Offering, including any shares of Common Stock purchased by the Stockholder and its affiliates in the rights offering, including as standby purchaser) the Stockholders’ and its affiliates’ voting percentage of Common Stock equals 69% on a fully-diluted basis.

 

In connection with the transactions described above, the Company has agreed to reimburse the Stockholder for up to $900,000 in transaction expenses, of which the Company has reimbursed the Stockholder $516,000.

 

In connection with the Purchase Agreement, the Company and the Stockholder entered into a Stockholders’ Agreement, dated as of August 6, 2104 (the “Stockholders’ Agreement”) pursuant to which, among other things, the Company granted the Stockholder approval rights with respect to certain transactions including with respect to the incurrence of indebtedness over specified amounts, the sale of assets over specified amounts, declaration of dividends, loans, capital contributions to or investments in any third party over specified amounts, changes in the size of the board of directors or changes in the Company’s CEO. In addition, the Stockholder agreed that until the earlier of the fifth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of Common Stock it will not increase its voting percentage of Common Stock to greater than 76% or cause the Company to engage in any buybacks in excess of 3% of the then outstanding shares of Common Stock without offering to acquire all of the then-outstanding Common Stock at the same price and on the same terms and conditions. The Stockholder further agreed that, until the earlier of the fifth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of Common Stock, it will not sell shares of Common Stock to any purchaser that would result in such purchaser having a voting percentage of Common Stock in excess of 40% (and with neither the Stockholder and its affiliates nor any other holder of Common Stock and its affiliates holding a voting percentage in excess of 40%) unless the purchaser contemporaneously makes a binding offer to acquire all of the then-outstanding Common Stock of the Company, at the same price and on the same terms and conditions as the purchase of shares from the Stockholder. The Stockholder also agreed that, until the earlier of the eighth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of Common Stock, the Stockholder will not engage in a transaction as described in Rule 13e-3 under the Securities Exchange Act of 1934, as amended, without offering to acquire all of the then-outstanding Common Stock at the same price and on the same terms and conditions. Additionally, until the earlier of the eighth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of Common Stock, the Stockholder agrees to maintain at least two directors who are not affiliates of the Stockholder or the Company (the “Non-Affiliated Directors”), and agrees that any related party transaction or deregistration of the Common Stock from SEC reporting requirements requires the approval of the Non-Affiliated Directors. The Stockholders’ Agreement also contains a right for the Stockholder to serve as the exclusive standby purchaser for any additional rights offerings prior to September 6, 2016, and a pre-emptive right to purchase its pro rata share of any additional offerings other than such rights offerings by the Company prior to such date.

 

The Stockholders Agreement also provides that, until the second anniversary of the Initial Closing, the Company will not seek, negotiate or consummate any sale of Common Stock (with certain customary exceptions), except through one or more rights offerings substantially on the same structural terms as the Rights Offering. In addition, the Stockholder agreed that until the earlier of the fifth anniversary of the Initial Closing or the date it owns less than 40% of the outstanding shares of Common Stock, it would provide support to the Company in various ways, including with respect to sourcing financing and other business opportunities.

 

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Additionally, in connection with the transactions described above, William Clifford, Michael Margolis and John Nemelka resigned from the Company’s board of directors. Pursuant to the Company’s Bylaws, the board of directors appointed Chris Haga, Blair Baker and Ed Stead to fill the vacancies created. Mr. Stead was appointed as a Class II director for a term expiring in 2017 and Mr. Baker and Mr. Haga were appointed as Class III directors for a terms expiring in 2014.

 

The Company also entered into new employment agreements with J. Brett Pope, chief executive officer, and Winston Black, managing director. Under their respective new agreements, Messrs. Pope and Black will each receive a base salary of $240,000 beginning January 1, 2015, and will be entitled to a bonus based on the Company’s performance. In addition, each received an option grant for 1,000,000 shares at an exercise price of $1.37 per share. Fifty percent of the options vest over 4 years beginning December 31, 2015, and fifty percent vest if the 30-day average closing stock price exceeds $2.06.

 

In connection with the transactions described above, the Company amended its Second Amended and Restated Rights Agreement to designate the Stockholder and it affiliates as Exempt Persons (as defined in the Rights Agreement) unless they own more than 76% of the outstanding shares of Common Stock.

 

In connection with the transactions, the Voting Agreement by and among the Stockholder and the Company dated September 6, 2013, was terminated.

 

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.

 

As of November 14, 2014, we have consummated fifteen transactions under our new strategy and expect those assets to generate income greater than our expenses in 2014. 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 2014. 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. In addition, we expect to generate income other than interest income from our interest in three revenue-producing investment advisory contracts from PBS Capital Management, LLC, as well as income generated from our other investment advisory contracts.

 

Operating Cash Flow

 

Net cash provided by operating activities was $2.6 million for the nine months ended September 30, 2014 and consisted primarily of net income of $5.7 million partially offset by noncash adjustments of $2.7 million and changes in operating assets and liabilities of $0.3 million. The noncash adjustments were primarily attributable to $4.5 million from equity income on an investment in an unconsolidated entity and $1.1 million in loan discount amortization, fee accretion and interest income in excess of cash collected, offset partially by $1.8 million deferred tax provision, $0.8 million stock compensation expense and $0.2 million net fair value market losses on warrants. We had positive cash flow from operating activities of $0.9 million for the nine months ended September 30, 2013, which included net income of $1.6 million, stock-based compensation of $0.2 million and $0.2 million from changes in assets and liabilities, partially offset by a $1.0 million income on an equity method and loan fee accretion of $0.2 million. 

 

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Investing Cash Flow

 

The Company’s investing activities had negative cash flow of $7.6 million during the nine months ended September 30, 2014, driven by net issuances of $11.7 million in finance receivables and a $1.5 million investment in marketable securities. These were partially offset by $5.5 million in cash distributions received from an investment in an unconsolidated entity.  The Company’s investing activities provided negative cash flow of $13.4 million during the nine months ended September 30, 2013, which primarily related to $13.8 million net issuance in finance receivables and a $3.0 million investment in marketable securities, partially offset by $3.4 million in cash distributions from an investment in an unconsolidated entity.   

 

Financing Cash Flow

 

The Company’s financing activities had positive cash flow of $66.5 million for the nine months ended September 30, 2014, which consisted of net proceeds of $74.5 million from the issuance of common stock through the Purchase Agreement with Carlson discussed previously, partially offset by a net repayment of $5 million on the Company’s credit facility and $3.0 million in cash distributions to non-controlling interests. The Company’s financing activities had a negative cash flow of $2.2 million for the nine months ended September 30, 2013, which consisted of cash distributions to non-controlling interests.   

 

Off-Balance-Sheet Arrangements

 

As of September 30, 2014, the Company did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

Outlook

 

During 2012, we adopted a new corporate strategy 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 November 14, 2014, we have consummated thirteen transactions under our revised 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. We expect that the income generated by such future investments would be earned with minimal additional operational expenses.

 

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ITEM 3.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Prior to commencing our strategic plan, the primary objective of our activities was to preserve cash. During the three months ended September 30, 2014, 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, 2014, 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 Securities and Exchange Commission 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, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

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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, 2013, filed with the SEC on March 31, 2014. 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, 2013.

 

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.

 

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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.

 

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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.

 

November 14, 2014

 

  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)

 

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
10/10/34
12/13/21
10/8/21
2/4/21
1/23/21
12/10/20
10/31/20
8/8/20
7/30/20
10/1/193,  4
12/31/1810-K,  10-K/A,  4
12/10/18
8/8/18
3/5/18
9/6/17
5/14/17
12/15/16
9/6/16
12/31/1510-K,  4
12/15/154
7/10/15
5/15/158-K
1/1/15
12/31/1410-K
11/24/14CORRESP,  UPLOAD
Filed on:11/14/14
11/7/14
11/3/14424B3,  424B4,  8-K
10/31/148-K
10/30/14
10/26/14
10/20/14
10/10/14
10/1/14
For Period end:9/30/14
9/15/14
9/9/14
8/18/144,  8-K,  8-K/A
7/31/14
7/30/148-K,  8-K/A
6/27/14
3/31/1410-K,  10-Q,  8-K,  S-1/A
2/15/14
2/13/14S-1
2/4/14
1/23/148-K
12/31/1310-K,  10-K/A
12/17/13
12/13/138-K
12/10/13
12/9/13
11/15/13
9/30/1310-Q
9/6/134
8/8/13
7/9/13
6/12/13
4/2/138-K
12/20/12
12/5/12
5/14/123,  4,  8-K
1/31/124,  8-K
3/31/1010-K,  10-Q
12/31/0910-K,  10-K/A,  8-K
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