SWKH 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2024

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

Commission File Number: 001-39184

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.)

5956 Sherry Lane, Suite 650
Dallas, TX	75225
(Address of Principal Executive Offices)	(Zip Code)

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

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

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

Common Stock, par value $0.001 per share	SWKH	The Nasdaq Stock Market LLC
9.00% Senior Notes due 2027	SWKHL	The Nasdaq Stock Market LLC

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. ☒ Yes ☐ NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ NO

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

Large Accelerated Filer ☐

Accelerated Filer ☐

Non-Accelerated Filer ☒

Smaller Reporting Company ☒

Emerging Growth Company ☐

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

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

As of August 8, 2024, there were 12,361,850 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

SWK Holdings Corporation

Form 10-Q

Quarter Ended June 30, 2024

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Unaudited Condensed Consolidated Balance Sheets—June 30, 2024 and December 31, 2023	1

	Unaudited Condensed Consolidated Statements of Income—Three and Six Months Ended June 30, 2024 and 2023	2

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity—Three and Six Months Ended June 30, 2024 and 2023	3

	Unaudited Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2024 and 2023	4

	Notes to the Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4	Controls and Procedures	38

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

	Signatures	41

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 heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Words such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “should,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially (both favorably and unfavorably) from those expressed or forecasted in the forward-looking statements.

These risks and uncertainties include, but are not limited to, those described in Item 1A, “Risk Factors,” and elsewhere in this report. Forward-looking statements that were believed to be true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	June 30, 2024			December 31, 2023
Assets:
Current assets:
Cash and cash equivalents	$	5,549		$	4,503
Restricted cash		—			733
Interest, accounts receivable and other receivables, net		7,384			4,729
Other current assets		1,859			1,904
Total current assets		14,792			11,869

Finance receivables, net of allowance for credit losses of $13,083 and $13,901 as of June 30, 2024 and December 31, 2023, respectively		265,470			274,504
Collateral on foreign currency forward contract		2,750			2,750
Marketable investments		731			48
Deferred tax assets, net		27,052			28,290
Warrant assets		835			1,759
Intangible assets, net		232			6,487
Property and equipment, net		5,008			5,438
Other non-current assets		4,504			3,109
Total assets	$	321,374		$	334,254

Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable and accrued liabilities	$	3,310		$	3,935
Deferred income		2,216			9
Total current liabilities		5,526			3,944

Contingent consideration payable		—			4,900
Unsecured senior notes, net		31,078			30,781
Revolving credit facility		—			12,350
Other non-current liabilities		1,566			1,964
Total liabilities		38,170			53,939

Commitments and contingencies (Note 6)

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; 12,447,195 and 12,497,770 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		12			12
Additional paid-in capital		4,423,472			4,425,104
Accumulated deficit		(4,140,280	)		(4,144,801	)
Total stockholders’ equity		283,204			280,315
Total liabilities and stockholders’ equity	$	321,374		$	334,254

See accompanying notes to the unaudited condensed consolidated financial statements.

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenues:
Finance receivable interest income, including fees	$	10,680		$	9,278		$	21,399		$	18,538
Pharmaceutical development		804			183			1,083			301
Other		57			36			103			69
Total revenues		11,541			9,497			22,585			18,908
Costs and expenses:
Provision (benefit) for credit losses		4,074			(682	)		9,397			(682	)
Loss on impairment of intangibles assets		5,771			—			5,771			—
Interest expense		1,119			363			2,375			545
Pharmaceutical manufacturing, research and development expense		520			1,509			1,050			2,228
Change in fair value of acquisition-related contingent consideration		(4,900	)		—			(4,900	)		—
Depreciation and amortization expense		421			637			935			1,285
General and administrative expense		2,923			2,997			5,607			5,537
Income from operations		1,613			4,673			2,350			9,995
Other income (expense), net
Unrealized net gain (loss) on warrants		226			399			131			(583	)
Net realized gain on sale of marketable investments		656			—			513			—
Realized gain (loss) on sale of assets		3			—			(228	)		—
Gain on revaluation of finance receivable		2,495			—			2,495			—
Realized and unrealized foreign currency transaction gains		437			316			524			502
Income before income tax expense		5,430			5,388			5,785			9,914
Income tax expense		1,035			1,454			1,264			1,345
Net income	$	4,395		$	3,934		$	4,521		$	8,569

Net income per share
Basic	$	0.35		$	0.31		$	0.36		$	0.67
Diluted	$	0.35		$	0.31		$	0.36		$	0.67
Weighted average shares outstanding
Basic		12,457			12,741			12,466			12,787
Diluted		12,528			12,785			12,534			12,830

See accompanying notes to the unaudited condensed consolidated financial statements.

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)


	Six Months Ended June 30, 2024
												Total
	Common Stock					Additional Paid-			Accumulated			Stockholders’
	Shares			Amount		In Capital			Deficit			Equity
Balances at December 31, 2023		12,497,770		$	12	$	4,425,104		$	(4,144,801	)	$	280,315
Stock-based compensation		—			—		111			—			111
Forfeiture of unvested restricted stock		(6,446	)		—		—			—			—
Issuance of common stock upon vesting of restricted stock		48,918			—		—			—			—
Repurchases of common stock in open market		(58,298	)		—		(999	)		—			(999	)
Net income		—			—		—			126			126
Balances at March 31, 2024		12,481,944			12		4,424,216			(4,144,675	)		279,553
Stock-based compensation		—			—		249			—			249
Issuance of common stock upon vesting of restricted stock		17,323			—		—			—			—
Repurchases of common stock in open market		(54,667	)		—		(950	)		—			(950	)
Net settlement for employee taxes on stock options		—			—		(43	)		—			(43	)
Stock options exercised, net		2,595			—		—			—			—
Net income		—			—		—			4,395			4,395
Balances at June 30, 2024		12,447,195		$	12	$	4,423,472		$	(4,140,280	)	$	283,204

	Six Months Ended June 30, 2023
												Total
	Common Stock					Additional Paid-			Accumulated			Stockholders’
	Shares			Amount		In Capital			Deficit			Equity
Balances at December 31, 2022		12,843,157		$	12	$	4,430,922		$	(4,151,005	)	$	279,929
Stock-based compensation		—			—		35			—			35
Effect of adoption of ASU 2016-13		—			—		—			(9,683	)		(9,683	)
Issuance of common stock upon vesting of restricted stock		16,008			—		—			—			—
Repurchases of common stock in open market		(28,766	)		—		(531	)		—			(531	)
Net income		—			—		—			4,635			4,635
Balances at March 31, 2023		12,830,399			12		4,430,426			(4,156,053	)		274,385
Stock-based compensation		—			—		164			—			164
Issuance of common stock upon vesting of restricted stock		8,612			—		—			—			—
Repurchase of common stock in open market		(272,492	)		—		(4,599	)		—			(4,599	)
Net income		—			—		—			3,934			3,934
Balances at June 30, 2023		12,566,519		$	12	$	4,425,991		$	(4,152,119	)	$	273,884

See accompanying notes to the unaudited condensed consolidated financial statements.

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net income	$	4,521		$	8,569
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for credit losses		9,397			(682	)
Loss on impairment of intangible assets		5,771			—
Right-of-use amortization and cease use costs		261			156
Amortization of debt issuance costs		491			168
Deferred income taxes, net		1,239			1,316
Net change in fair value of warrant assets		(131	)		583
Net realized gain on exercise of warrants		(513	)		—
Realized loss from sale of assets		228			—
Change in fair value of acquisition-related contingent consideration		(4,900	)		—
Gain on revaluation of finance receivable		(2,495	)		—
Foreign currency transaction gain		(327	)		(516	)
Loan discount amortization and fee accretion		(2,592	)		(2,297	)
Interest paid-in-kind		(904	)		(957	)
Stock-based compensation		360			199
Depreciation and amortization expense		935			1,285
Changes in operating assets and liabilities:
Interest, accounts receivable and other receivables		(2,655	)		(1,287	)
Other assets		(150	)		(792	)
Accounts payable, accrued expenses, and other non-current liabilities		(900	)		(354	)
Deferred income		2,207			(3	)
Net cash provided by operating activities		9,843			5,388

Cash flows from investing activities:
Sale of finance receivables		—			13,942
Sale of marketable investments		574			—
Investment in finance receivables		(7,446	)		(13,101	)
Repayment of finance receivables		11,693			3,041
Corporate debt securities principal payments		13			17
Purchases of property and equipment		(21	)		(191	)
Net cash provided by investing activities		4,813			3,708

Cash flows from financing activities:
Net settlement for employee taxes on stock options		(43	)		—
Net payments on credit facility		(12,350	)		(2,445	)
Payments for financing costs		—			(872	)
Repurchases of common stock, including fees and expenses		(1,950	)		(5,130	)
Net cash used in financing activities		(14,343	)		(8,447	)

Net increase in cash, cash equivalents, and restricted cash		313			649
Cash, cash equivalents, and restricted cash at beginning of period		5,236			6,156
Cash, cash equivalents, and restricted cash at end of period	$	5,549		$	6,805

Supplemental non-cash investing and financing activities:
Derecognition of right-of-use assets and operating lease liabilities upon termination of lease	$	82		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

SWK HOLDINGS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Operations

SWK Holdings Corporation (the “Company,” “we,” or “us”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, we commenced a strategy of building a specialty finance and asset management business. In August 2019, we commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing business. Our operations comprise two reportable segments: “Finance Receivables” and “Pharmaceutical Development.” We evaluate and invest in a broad range of healthcare related companies and products with innovative intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical industries (collectively, “life sciences”). We allocate capital to each segment in order to generate income through the sales of life science products by third parties and related earned income sources. The Company is headquartered in Dallas, Texas, and as of June 30, 2024, the Company had 22 full-time employees.

The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset.

As of August 8, 2024, the Company and its partners have executed transactions with 56 different parties under its specialty finance strategy, funding an aggregate of $779.8 million in various financial products across the life science sector. The Company’s portfolio includes senior and subordinated debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and related intellectual property.

During 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). Enteris is a clinical development and manufacturing organization providing development services to pharmaceutical partners as well as innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence® platform. We seek to generate income by providing customers pharmaceutical development, formulation and manufacturing services as well as licensing its internally developed intellectual property.

With an effective date of April 21, 2023 we entered into a collaboration agreement with a strategic partner under which we would be the exclusive provider of certain contract development and manufacturing organization (“CDMO”) services to its customers. Fee revenue generated as a result of this agreement is presented as pharmaceutical development revenue on the unaudited condensed consolidated statement of income and is accounted for in accordance with our revenue recognition policy as described under Revenue Recognition below.

With an effective date of January 1, 2024, we entered into an Option and Asset Purchase Agreement with the same strategic partner on March 14, 2024, which granted the partner an exclusive option to acquire certain of Enteris’ assets related to its business of providing CDMO services to third parties, subject to certain exclusions. The partner must exercise the option by or before January 1, 2026.

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. The Company consolidates a variable interest entity (“VIE”) when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE, after elimination of intercompany accounts and transactions.

The Company owns interests in various partnerships and limited liability companies, or LLCs. The Company consolidates its investments in these partnerships or LLCs where the Company, as the general partner or managing member, exercises effective control. Even though the Company’s ownership may be less than 50 percent, the related governing agreements provide the Company with broad powers, and the other parties do not participate in the management of the entities and do not effectively have the ability to remove the Company.

SEC Form 10-Q filed by SWK Holdings Corporation