SWK Holdings Corporation — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. The filing identifies SWK as a shell company with no material operating business. After selling substantially all assets in December 2009, the company is seeking U.S.-based acquisition or investment opportunities.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data. The filing reports no revenue in either 2011 or comparable 2010 periods.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| General and administrative expenses | $0.364 | $0.381 | $1.051 | $1.397 |
| Interest and other income, net | $0.069 | $0.147 | $0.223 | $0.344 |
| Gain on asset sale | — | — | $0.167 | $0.021 |
| Net loss | $(0.296) | $(0.238) | $(0.665) | $(1.038) |
| Basic and diluted loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.03) |
| Operating cash flow | Not separately provided quarterly | $(0.875) | $(1.096) |
- Cash and cash equivalents were $38.551 million at September 30, 2011, down from $39.259 million at December 31, 2010. Working capital was $38.5 million, versus $39.1 million at year-end.
- Nine-month investing cash flow was positive $0.167 million, reflecting asset-sale escrow proceeds; financing cash flow was zero. Cash declined $0.708 million over the nine-month period.
- No outstanding debt commitments were reported. Total liabilities were $0.169 million; the warrant liability was zero at quarter-end. No off-balance-sheet arrangements were reported.
- Margins are not meaningful because the company reported no revenue or operating business.
Changes versus comparable periods
- Q3 net loss widened to $0.296 million from $0.238 million, despite lower general and administrative expenses; interest and other income was lower.
- Nine-month net loss narrowed to $0.665 million from $1.038 million, and operating cash use declined to $0.875 million from $1.096 million. Lower corporate expenses and the $0.167 million asset-sale gain contributed; there are no remaining escrow funds expected.
- Cash and cash equivalents were $0.708 million lower than at December 31, 2010. The company said lower cash balances contributed to reduced interest income.
Outlook, risks, and unusual items
- Management estimated that available capital would fund limited operating activities for 12 months from the September 30 balance-sheet date. It did not expect income beyond interest until a business combination or another income source; low interest rates were expected to leave interest income insufficient to cover administrative costs.
- Management continues to evaluate acquisition and investment candidates but gave no transaction timetable or specific earnings guidance. It cautioned that suitable opportunities may not be found and existing net operating loss carryforwards may not be usable.
- The company reported a long-running securities class action concerning IPO underwriter compensation. A settlement received final district-court approval, and the company said its insurer had agreed to assume its entire settlement payment obligation, but an objector appealed and reversal remained possible.
- A separate Section 16(b) case names the company as a nominal defendant, asserts no claim against it, and seeks no relief from it. The Supreme Court had granted the underwriters’ certiorari petition; oral argument was scheduled for November 28, 2011. The filing warns that litigation and defense costs could affect results and cash flows.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether SWK has identified or completed an acquisition or other investment since the filing, and the expected funding and economics of any transaction.
- Current cash burn, cash balances, and the continuing adequacy of the estimated 12-month liquidity runway, particularly with escrow proceeds exhausted.
- Developments and potential costs from the IPO-related litigation, including whether the settlement became final and the outcome of the Supreme Court proceedings.
- Whether any future taxable income can make use of the company’s net operating loss carryforwards.