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, 2018

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

Commission File Number: 000-27163

 

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

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

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, 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   o   Accelerated Filer   o   Non-Accelerated Filer   o   Smaller Reporting Company    x    Emerging Growth Company   o

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

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

As of November 9, 2018, there were 13,068,766 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

SWK Holdings Corporation

Form 10-Q

Quarter Ended September 30, 2018

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets—September 30, 2018 and December 31, 2017	1
	Unaudited Condensed Consolidated Statements of Income (Loss)—Three and Nine Months Ended September 30, 2018 and 2017	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2018 and 2017	3
	Unaudited Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2018 and 2017	4
	Notes to the Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	Signatures	30
	Certifications

FORWARD-LOOKING STATEMENTS

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions, and include, but are not limited to, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Words such as “anticipate,” “believe,” “estimate,” “expects,” “intend,” “plan,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially (both favorably and unfavorably) from those expressed or forecasted in the forward-looking statements.

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

PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	September 30,  2018			December 31,  2017
ASSETS
Cash and cash equivalents	$	19,214		$	30,557
Accounts receivable		1,864			1,637
Finance receivables, net		165,585			151,995
Marketable investments		1,233			1,856
Deferred tax asset		22,327			22,725
Warrant assets		2,064			987
Other assets		858			126
Total assets	$	213,145		$	209,883
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	3,386		$	1,840
Warrant liability		15			91
Total liabilities		3,401			1,931
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		—			—
Common stock, $0.001 par value; 250,000,000 shares authorized; 13,068,819 and 13,053,422 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		13			13
Additional paid-in capital		4,433,785			4,433,589
Accumulated deficit		(4,224,054	)		(4,225,863	)
Accumulated other comprehensive income		—			213
Total SWK Holdings Corporation stockholders’ equity		209,744			207,952
Non-controlling interests in consolidated entity		—			—
Total stockholders’ equity		209,744			207,952
Total liabilities and stockholders’ equity	$	213,145		$	209,883

See accompanying notes to the unaudited condensed consolidated financial statements.

1

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues:
Finance receivable interest income, including fees	$	5,882		$	5,423		$	19,463		$	15,813
Income related to investments in unconsolidated entity		—			—			—			10,539
Other		2			64			10			73
Total revenues		5,884			5,487			19,473			26,425
Costs and expenses:
Provision for credit losses		5,000			—			6,179			—
Impairment expense		7,799			—			7,799			—
General and administrative		1,330			1,484			3,729			3,096
Total costs and expenses		14,129			1,484			17,707			3,096
Other income (expense), net
Unrealized net gain (loss) on derivatives		819			(191	)		881			(805	)
Unrealized net gain (loss) on equity securities		100			—			(565	)		—
Gain (loss) on sale (write off) of investments		(87	)		—			(87	)		243
Income (loss) before provision (benefit) for income taxes		(7,413	)		3,812			1,995			22,767
Provision (benefit) for income taxes		(1,697	)		1,054			399			6,160
Consolidated net income (loss)		(5,716	)		2,758			1,596			16,607
Net income attributable to non-controlling interests		—			—			—			5,204
Net income (loss) attributable to SWK Holdings Corporation stockholders	$	(5,716	)	$	2,758		$	1,596		$	11,403
Net income (loss) per share attributable to SWK Holdings Corporation stockholders:
Basic	$	(0.44	)	$	0.21		$	0.12		$	0.87
Diluted	$	(0.44	)	$	0.21		$	0.12		$	0.87
Weighted Average Shares
Basic		13,064			13,043			13,058			13,036
Diluted		13,064			13,047			13,062			13,040

See accompanying notes to the unaudited condensed consolidated financial statements.

2

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
Consolidated net income (loss)	$	(5,716	)	$	2,758		$	1,596	$	16,607
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on investment in securities
Change in fair value of securities		—			(836	)		—		875
Total other comprehensive income (loss)		—			(836	)		—		875
Comprehensive income (loss)		(5,716	)		1,922			1,596		17,482
Comprehensive income attributable to non-controlling interests		—			—			—		5,204
Comprehensive income (loss) attributable to SWK Holdings Corporation stockholders	$	(5,716	)	$	1,922		$	1,596	$	12,278

See accompanying notes to the unaudited condensed consolidated financial statements.

3

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Consolidated net income	$	1,596		$	16,607
Adjustments to reconcile net income to net cash provided by operating activities:
Income from investment in unconsolidated entity		—			(10,539	)
Provision for loan credit losses		6,179			—
Impairment expense		7,799			—
Deferred income taxes		399			6,160
Change in fair value of warrants		(881	)		805
Change in fair value of equity securities		565			—
Gain (loss) on sale (write off) of investments		87			(243	)
Loan discount amortization and fee accretion		(18	)		(2,260	)
Interest paid-in-kind		(144	)		(1,330	)
Stock-based compensation		196			222
Interest income in excess of cash received		(186	)		(92	)
Other		12			13
Changes in operating assets and liabilities:
Accounts receivable		(227	)		(544	)
Other assets		15			(26	)
Accounts payable and other liabilities		(426	)		810
Net cash provided by operating activities		14,966			9,583
Cash flows from investing activities:
Cash distributions from investment in unconsolidated entity		—			17,524
Proceeds from sale of available-for-sale marketable securities		—			345
Investment in finance receivables		(68,390	)		(36,482	)
Repayment of finance receivables		42,542			1,718
Marketable investment principal payment		55			76
Other		(8	)		(11	)
Net cash used in investing activities		(25,801	)		(16,830	)
Cash flows from financing activities:
Debt issuance costs		(508	)		—
Distribution to non-controlling interests		—			(8,960	)
Net cash used in financing activities		(508	)		(8,960	)
Net decrease in cash and cash equivalents		(11,343	)		(16,207	)
Cash and cash equivalents at beginning of period		30,557			32,182
Cash and cash equivalents at end of period	$	19,214		$	15,975

See accompanying notes to the unaudited condensed consolidated financial statements.

4

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”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, the Company commenced its strategy of building a specialty finance and asset management business. The Company’s strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. The Company is primarily focused on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. The Company has been deploying its assets to earn interest, fees, and other income pursuant to this strategy, and the Company continues to identify and review financing and similar opportunities on an ongoing basis. In addition, through the Company’s wholly-owned subsidiary, SWK Advisors LLC, the Company provides 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. The Company intends to fund transactions through its own working capital, and its revolving credit facility, as well as by building its asset management business by raising additional third-party capital to be invested alongside the Company’s capital.

The Company fills a niche that it believes is underserved in the sub-$50 million transaction size. Since many of its competitors that provide longer term, non-traditional debt and/or royalty-related financing options have much greater financial resources than the Company, they tend to not focus on transaction sizes below $50 million as it is generally inefficient for them to do so. In addition, the Company does 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, the Company believes it faces less competition from such investors in transactions that are less than $50 million.

The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset. However, at this time, under current law, we do not anticipate that our life science business strategy will generate sufficient income to permit us to utilize all of our NOLs prior to their respective expiration dates. As such, it is possible that we might pursue additional strategies that we believe might result in our ability to utilize more of our NOLs.

As of November 8, 2018, the Company and its partners have executed transactions with 31 different parties under its specialty finance strategy, funding an aggregate $460 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.

The Company is headquartered in Dallas, Texas.

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“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. The Company has reviewed each of the underlying agreements to determine if it has effective control. If circumstances change and it is determined this control does not exist, any such investment would be recorded using the equity method of accounting. Although this would change individual line items within the Company’s consolidated financial statements, it would have no effect on its operations and/or total stockholders’ equity attributable to the Company.

5

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, 2018. 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, 2017, filed with the SEC on March 29, 2018.

Use of Estimates

The preparation of the Company’s 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition, stock-based compensation, impairment of financing receivables and long-lived assets, valuation of warrants, income taxes and contingencies and litigation, among others.  Some of these judgments can be subjective and complex, and consequently, actual results may differ from these estimates. The Company’s 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 changes to those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, and economic downturns, 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 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.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 updates the fair value measurement disclosure requirements by (i) eliminating certain requirements, including disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, (ii) modifying certain requirements, including clarifying that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date and (iii) adding certain requirements, including disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted for any eliminated or modified disclosures. The Company is currently evaluating the new guidance but believes it will not have a material impact on its consolidated financial statements, as the Company has had no historical transfers between hierarchies and assets currently measured under the Level 3 fair value hierarchy is minimal.

6

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The new standard adds an impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of losses. The ASU describes the impairment allowance as a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be measured in a manner similar to current GAAP; however, the amendments in this update require that credit losses be presented as an allowance rather than as a write-down, which will allow an entity the ability to record reversals of credit losses in current period net income. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The Company is currently evaluating the new guidance but believes it is likely to incur more upfront losses on its portfolio under the new CECL model.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); and Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, and (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.” This guidance addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the new guidance to determine the impact on its consolidated financial statements upon adoption in fiscal 2019. 

7

Note 2. Net Income (Loss) per Share

Basic net income (loss) 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 income (loss) per share for the following periods (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Numerator:
Net income (loss) attributable to SWK Holdings Corporation stockholders	$	(5,716	)	$	2,758	$	1,596	$	11,403
Denominator:
Weighted-average shares outstanding		13,064			13,043		13,058		13,036
Effect of dilutive securities		—			4		4		4
Weighted-average diluted shares		13,064			13,047		13,062		13,040
Basic income (loss) per share attributable to SWK Holdings Corporation stockholders	$	(0.44	)	$	0.21	$	0.12	$	0.87
Diluted income (loss) per share attributable to SWK Holdings Corporation stockholders	$	(0.44	)	$	0.21	$	0.12	$	0.87

For the three months ended September 30, 2018 and 2017, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately 290,000 and 287,000, respectively, have been excluded from the calculation of diluted income (loss) per share as all such securities were anti-dilutive. For the nine months ended September 30, 2018 and 2017, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately 271,000 and 324,000, respectively, have been excluded from the calculation of diluted income per share as all such securities were anti-dilutive. 

8

Note 3. Finance Receivables, Net

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,  2018			December 31,  2017
Term loans	$	145,295		$	118,533
Royalty purchases		28,128			35,121
Total before allowance for credit losses		173,423			153,654
Allowance for credit losses		(7,838	)		(1,659	)
Total carrying value	$	165,585		$	151,995

 Credit Quality of Finance Receivables

The Company originates finance receivables to companies primarily in the life sciences sector. This concentration of credit exposes the Company to a higher degree of risk associated with this sector.

On a quarterly basis, the Company evaluates the carrying value of each finance receivable for impairment. A term loan is considered to be impaired when, based on current information and events, it is determined that the Company will not be able to collect the amounts due according to the loan contract, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The Company would generally place term loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain and they are 90 days past due for interest or principal, unless the term loan is both well-secured and in the process of collection. When placed on nonaccrual, the Company would reverse any accrued unpaid interest receivable against interest income and amortization of any net deferred fees is suspended. Generally, the Company would return a term loan to accrual status when all delinquent interest and principal become current under the terms of the credit agreement and collectability of remaining principal and interest is no longer doubtful. In certain circumstances, the Company may place a finance receivable on nonaccrual status but conclude it is not impaired. The Company may retain independent third-party valuations on such nonaccrual positions to support impairment decisions.

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, or the estimated fair value of the collateral, less estimated costs to sell. If it is determined that the value of an impaired receivable is less than the recorded investment, the Company would recognize impairment with a charge to the allowance for credit losses. When the value of the impaired receivable is calculated by discounting expected cash flows, interest income would be recognized using the receivable’s effective interest rate over the remaining life of the receivable.

The Company individually develops the allowance for credit losses for any identified impaired loans. In developing the allowance for credit losses, the Company considers, 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.

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The following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands):

	September 30, 2018						December 31, 2017
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
Term loans	$	29,469	$	110,826	$	140,295	$	11,402	$	107,131	$	118,533
Royalty purchases, net of credit loss allowance		—		25,290		25,290		—		33,462		33,462
Total carrying value	$	29,469	$	136,116	$	165,585	$	11,402	$	140,593	$	151,995

As of September 30, 2018 and December 31, 2017, the Company had three term loans associated with three portfolio companies in nonaccrual status with a carrying value, net of impairment and provision for credit loss allowance, of $29.5 million and $11.4 million, respectively. The Company collected $0.6 million on one nonaccrual loan during the nine months ended September 30, 2018. Of the three nonaccrual term loans as of September 30, 2018, two loans are deemed to be impaired. (Please see ABT Molecular Imaging, Inc., B&D Dental Corporation, and Hooper Holmes, Inc. below for further details regarding nonaccrual term loans.)

Term Loans

ABT Molecular Imaging, Inc. (“ABT”)

On October 10, 2014, the Company entered into a credit agreement pursuant to which the Company provided ABT a second lien term loan in the principal amount of $10.0 million. The loan was scheduled to mature on October 8, 2021. The synthetic royalty payment due to the Company on December 15, 2015 was blocked by ABT’s first lien lender pursuant to the terms of the intercreditor agreement by and between the Company and the first lien lender as a result of a forbearance agreement entered into between ABT and the first lien lender. Under the terms of the forbearance agreement, the first lien lender deferred principal payments until maturity of the first lien in March 2016 and ABT raised additional equity capital.

In February 2016, ABT violated the terms of the forbearance agreement with the first lien lender. In order to control the workout of the default under the first lien loan and prevent the equity sponsors from taking control of the first lien term loan, the Company purchased from an unrelated party the first lien term loan at par for a purchase price of $0.7 million. The equity sponsors funded cash shortfalls into the second quarter of 2016. Since 2016, the Company has entered into additional amendments to the first lien term loan to provide for an additional $10.1 million of liquidity under the first lien credit agreement. The Company recorded an impairment loss of $7.6 million as of December 31, 2017.

On June 13, 2018, ABT filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) in order to implement a restructuring that will entail either a sale of substantially all of ABT’s assets under section 363 of the bankruptcy code or confirmation of a plan that will convert a portion of the Company’s outstanding secured indebtedness into 100 percent of the equity of reorganized ABT. The Company agreed to provide ABT up to $1.65 million of secured, debtor-in-possession financing to support ABT’s proposed bankruptcy restructuring. The Bankruptcy Court set August 13, 2018 as the date sale bids were due, and the minimum bid to participate in ABT’s proposed section 363 sale was $5.3 million in cash. No party submitted a bid by the deadline that conformed to the Bankruptcy Court’s order and the estate moved to accept non-conforming bids. On August 29, 2018, one party submitted a non-conforming bid. As the parties had not concluded negotiating the documentation regarding the transaction by September 28, 2018, ABT and the Company elected to proceed with a court hearing to approve the disclosure statement that outlined the reorganization plan, whereby the Company would become the owner of reorganized ABT. The Bankruptcy Court approved the disclosure statement on September 28, 2018. To allow for additional time to potentially reach a deal with the bidder, the estate delayed soliciting ballots from ABT’s stakeholders until November 7, 2018.

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On October 31, 2018, ABT announced that it entered into an asset purchase agreement with Best-ABT, Inc., a wholly-owned subsidiary of Best Medical International, Inc. (“Best”), for aggregate consideration of (i) $500,000, paid over ten years in equal quarterly installments, plus (ii) a ten percent royalty on ABT’s net sales, including any commercialized improvements made to ABT’s technology, paid quarterly for the ten year period from closing pursuant to a royalty security agreement by and between Best and SWK Funding LLC, a wholly-owned subsidiary of the Company (“SWK Funding”). SWK Funding will receive 100 percent of the consideration. The Bankruptcy Court approved the asset sale transaction and terminated the plan of reorganization on November 8, 2018. The sale is expected to close within five business days. After November 8, 2018, post closing of the sale, the Company will have no further funding liabilities.

During the three months ended September 30, 2018, the Company reevaluated its collateral position, considering the expected outcome of the Chapter 11 process, and as a result, the Company recognized impairment expense of $5.3 million to write off the second lien term loan. Of the $5.3 million, $2.0 million reflects an accrual for estimated exit costs. The Company also recorded an allowance for credit losses of $5.0 million on the first lien term loan in order to reflect the loan at its estimated fair value of $5.8 million as of September 30, 2018, which is based on discounted expected future cash flows provided by Best.

B&D Dental Corporation (“B&D”)

On December 10, 2013, the Company entered into a five-year credit agreement to provide B&D a senior secured term loan with a principal amount of $6.0 million funded upon close, net of an arrangement fee of $60,000. The loan was scheduled to mature on December 10, 2018. Subsequently, the terms of the loan have been amended, and the Company has funded additional amounts to B&D. As of September 30, 2018, the total amount funded was $8.1 million. B&D is currently evaluating strategic options, including a potential sale of the business.

B&D is currently in default under the terms of the credit agreement, and as a result, the Company classified the loan to nonaccrual status as of September 30, 2015. During the first and fourth quarters of 2016, the Company executed two additional amendments to the loan to advance an additional $0.5 million in order to directly pay critical vendors and protect the value of the collateral. The Company believes its collateral position is greater than the unpaid balance; thus, accrued interest has not been reversed nor has an allowance been recorded as of September 30, 2018. The Company considered several factors in this determination, including an independent third-party valuation and developments in B&D’s business and industry.

Hooper Holmes, Inc. (“Hooper”)

On May 12, 2017, the Company provided a $6.5 million term loan to Hooper to support its merger with Provant Health Solutions, LLC (“Provant”). On August 8, 2017, the Company provided an additional $2.0 million term loan with terms similar to the original term loan. The $2.0 million August term loan was scheduled to mature on February 1, 2018. In late January, Hooper informed the Company of tight liquidity and that it was unable to repay the full $2.0 million; thus, the Company agreed to extend the maturity for twelve weeks to April 30, 2018 in exchange for a partial repayment of $0.3 million on February 1, 2018 and an additional $0.3 million on March 15, 2018. However, in mid-March, Hooper informed the Company that it was unable to repay the $0.3 million that was due on March 15, 2018. The Company required Hooper to retain financial advisors to evaluate strategic options, which included a potential sale of the business.

On August 27, 2018, Hooper announced that it entered into an asset purchase agreement with Summit Health, Inc. (“Summit”), a subsidiary of Quest Diagnostics (“Quest”). In conjunction with the sale process, Hooper petitioned for Chapter 11 bankruptcy protection to facilitate a rapid section 363 sale process. Between May and August 2018, the Company entered into additional amendments, whereby the Company advanced Hooper an additional $9.4 million to meet its working capital requirements during the sale process and an additional $1.5 million of debtor-in-possession financing through its sale on October 10, 2018.

On October 10, 2018, the Company received $15.6 million of cash proceeds from the asset sale, with an additional $0.2 million expected to be collected in the coming months, pursuant to the bankruptcy court approved estate wind down budget. As of September 30, 2018, the Company recorded the loan at its realizable value of $15.6 million and recognized a $2.5 million impairment charge as a result (please refer to Note 10, Subsequent Events, for further details on the Hooper section 363 sale).

Royalty Purchases

Cambia®

On July 31, 2014, the Company purchased a 25 percent royalty on sales of Cambia® from royalty holder, APR Applied Pharma Research S.A. (“APR”), for $4.0 million. On December 2, 2015, the Company purchased a second 25 percent royalty on sales of Cambia® for $4.5 million. In the U.S., Cambia® is marketed by DepoMed, Inc. (“DepoMed”) while the product is marketed by Aralez Pharmaceuticals, Inc. in Canada. As disclosed by DepoMed, Cambia® prescription trends decelerated in 2017, and while they have begun to stabilize, they are not growing in line with the Company’s original forecast. During the three months ended March 31, 2018, the Company reduced its expectations for future royalty receipts and recognized an allowance for credit loss on the royalty purchase of $1.2 million. 

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Note 4. Marketable Investments

Investments in marketable securities at September 30, 2018 and December 31, 2017 consist of the following (in thousands):

	September 30,  2018		December 31,  2017
Corporate debt securities	$	545	$	600
Equity securities		688		1,256
Total	$	1,233	$	1,856

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities as of September 30, 2018 and December 31, 2017, are as follows (in thousands):

September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
Corporate debt securities	$	545	$	—	$	—	$	545

December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
Corporate debt securities	$	600	$	—	$	—	$	600

The following table presents the proceeds from sales, realized gains and losses on equity securities that were sold or written off during the three and nine months ended September 2018 and 2017, and net unrealized gains and losses on equity securities. The table also includes changes in fair value of equity securities as prescribed by ASC 321, “Investment - Equity Securities.” ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” was adopted on January 1, 2018, at which time a cumulative effect adjustment of $213,000 was recorded to reclassify the amount of accumulated unrealized gains related to equity securities from accumulated other comprehensive income to retained earnings (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Proceeds from sale of equity securities	$	—		$	—	$	—		$	345
Realized gain (loss) on sale (write off) of equity securities	(4		)	—		(4		)	243
Unrealized net gain (loss) on equity securities reflected in the Consolidated Statements of Income (Loss)	100			—		(565		)	—

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Equity securities with unrealized losses, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands):

September 30, 2018	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Equity securities	$	688	$	(305	)	$	—	$	—		$	688	$	(305	)
December 31, 2017	Less than Twelve Months					Twelve Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Equity securities	$	—	$	—		$	33	$	(117	)	$	33	$	(117	)

Equity Securities

The Company’s equity securities include 661,076 shares of Cancer Genetics common stock. During the three months ended September 30, 2018, the Company recognized a nominal loss on the write off of its equity securities in Hooper due to the announcement of its section 363 sale in August (please refer to Notes 3 and 10 for further details on the Hooper section 363 sale). As of September 30, 2018, the Cancer Genetics equity securities are reflected at their fair value of $0.7 million.

During the nine months ended September 30, 2017, the Company sold 75,000 shares of Cancer Genetics common stock, which resulted in a realized gain of $0.2 million.

Debt Securities

On July 9, 2013, the Company entered into a note purchase agreement to purchase, at par, $3.0 million of a total of $100.0 million aggregate principal amount of senior secured notes due in November 2026.  The agreement allows the first interest payment date to include paid-in-kind notes for any cash shortfall, of which the Company received $0.1 million on November 15, 2013. The notes are secured only by certain royalty and milestone payments associated with the sales of pharmaceutical products.

The senior secured notes have been placed on non-accrual status as of June 30, 2016. Total cash collected during the nine months ended September 30, 2018 was $55,000, which was credited to the notes’ carrying value. As of September 30, 2018, the notes are reflected at their estimated fair value of $0.5 million.

Note 5. Revolving Credit Facility

On June 29, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with State Bank and Trust Company as a lender and the administrative agent (“State Bank”) pursuant to which State Bank will provide the Company with up to a $20 million revolving senior secured credit facility, which the Company can draw down and repay until maturity, subject to borrowing base eligibility. The Loan Agreement matures on June 29, 2021.

The Loan Agreement accrues interest at the Daily LIBOR Rate, with a floor of 1.00 percent, plus a 3.25 percent margin and principal is repayable in full at maturity. Interest is generally required to be paid monthly in arrears. The Loan Agreement requires the payment of an unused line fee of 0.50 percent, which will be recorded as interest expense. The Company paid $0.6 million in fees at closing, which have been capitalized as deferred financing costs and will be amortized on a straight-line basis over the term of the Loan Agreement.

The Loan Agreement has an advance rate against the Company’s finance receivables portfolio, including 85 percent against senior first lien loans, 70 percent against second lien loans and 50 percent against royalty receivables, subject to certain eligibility requirements as defined in the Loan Agreement. The Loan Agreement contains certain affirmative and negative covenants including a minimum asset coverage and minimum interest coverage ratios.

During the nine months ended September 30, 2018, the Company recognized $0.1 million of interest expense, which is included in general and administrative expense. As of September 30, 2018, no amount was outstanding under the Loan Agreement, and $20 million was available for borrowing.

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Note 6. Variable Interest Entities

The Company consolidates the activities of VIEs of which it is 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”) 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 $13.0 million. 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 $13.0 million included $6.0 million provided by SWK Holdings GP and $7.0 million provided by non-controlling interests.  Subject to customary limited partner protections afforded the investors by the terms of the limited partnership agreement, the Company maintained voting and managerial control of SWK HP and therefore included it in its consolidated financial statements.

SWK HP had significant influence over the decisions made by Holmdel. SWK HP received quarterly distributions of cash flow generated by InnoPran XL according to a tiered scale that was subject to certain cash on cash returns received by SWK HP. SWK HP achieved the 2x cash on cash return threshold with the November 2016 distribution as such its economic ownership in Holmdel approximated 49 percent.

On February 23, 2017, Holmdel sold the U.S. marketing authorization rights to InnoPran XL to ANI Pharmaceuticals, Inc. SWK Holdings GP received net proceeds from the transaction of approximately $8.0 million. The approximate $8.0 million of proceeds includes a 5 percent incentive fee earned from SWK HP, and SWK Holdings GP’s share of the sale proceeds. As part of the transaction, SWK HP and all involved parties executed mutual releases and terminations of all license and supply agreements. SWK Holdings GP received an additional distribution regarding InnoPran XL sales covering the period from January 1, 2017 through the date of sale and has not received any further material distributions.

Unconsolidated VIE

For the three and nine months ended September 30, 2018, the Company did not recognize any income or receive any cash distributions from Holmdel. For the nine months ended September 30, 2017, the Company recognized $10.5 million of equity method gains. The amount of equity method gains attributable to the non-controlling interest in SWK HP was $5.2 million. 

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Note 7. Related Party Transactions

On September 6, 2013, in connection with entering into a credit facility, the Company issued warrants to an affiliate of a stockholder, Carlson Capital, L.P. (the “Stockholder”), for 100,000 shares of the Company’s common stock at a strike price of $13.88 per share. The warrants have a price anti-dilution mechanism that was triggered by the price that shares were sold by the Company in a rights offering in 2014, and as a result, the strike price of the warrants was reduced to $13.48 per share.

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 to the Company’s stock. As such, the warrants are reflected as a warrant liability in the consolidated balance sheets. The Company recorded a nominal gain for the three and nine months ended September 30, 2018. The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

	September 30,  2018			December 31,  2017
Dividend rate		—			—
Risk-free rate		2.8	%		2.0	%
Expected life (years)		1.9			2.7
Expected volatility		17.6	%		21.9	%

The changes on the value of the warrant liability during the nine months ended September 30, 2018 were as follows (in thousands):

Fair value – December 31, 2017	$	91
Issuances		—
Changes in fair value		(76	)
Fair value – September 30, 2018	$	15

Note 8. Stockholders’ Equity

Stock Compensation Plans

During the nine months ended September 30, 2018 and 2017, the Company’s Board of Directors (the “Board”) Board approved compensation for Board services by granting 15,397 and 15,906 shares, respectively, of common stock as compensation for the non-employee directors. During both the nine months ended September 30, 2018 and 2017, the Company recorded approximately $0.2 million in Board stock-based compensation expense. The aggregate stock-based compensation expense, including the quarterly Board grants, recognized by the Company for both of the nine months ended September 30, 2018 and 2017 was $0.2 million.

Non-controlling Interests

As discussed in Note 6, SWK HP had a limited partnership interest in Holmdel. There has been no change to the carrying amount of the non-controlling interest since December 31, 2017. 

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Note 9. 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, 2018.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments, other than investment in affiliates.

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.

Cash and cash equivalents

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Equity Securities

Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices).

Finance Receivables

The fair values of finance receivables are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the finance receivables. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. These receivables are classified as Level 3. Finance receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected below.

Marketable Investments and Warrants

Marketable Investments

If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities would be classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets or broker quotes utilizing observable inputs, and accordingly these securities would be classified as Level 2. If market prices are not available and there are no observable inputs, then fair value would be estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes. Such securities would be classified as Level 3, if the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company checks the validity of received prices based on comparison to prices of other similar assets and market data such as relevant bench mark indices. Available-for-sale securities are measured at fair value on a recurring basis, while securities with no readily available fair market value are not, but estimates of fair value are reflected below.

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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, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial Assets:
Warrant assets	$	2,064	$	—	$	—	$	2,064
Marketable investments		1,233		688		—		545
Financial Liabilities:
Warrant liability	$	15	$	—	$	—	$	15

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted prices in active markets for identical assets or liabilities (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial Assets:
Warrant assets	$	987	$	—	$	—	$	987
Marketable investments		1,856		1,256		—		600
Financial Liabilities:
Warrant liability	$	91	$	—	$	—	$	91

The changes on the value of the warrant assets during the nine months ended September 30, 2018 were as follows (in thousands):

Fair value – December 31, 2017	$	987
Issued		355
Canceled		(83	)
Change in fair value		805
Fair value – September 30, 2018	$	2,064

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The Company holds warrants issued to the Company in conjunction with certain term loan investments. These warrants meet the definition of a derivative and are included in the unaudited condensed consolidated balance sheets. The fair values for warrants outstanding, which do not have a readily determinable value, are measured using the Black-Scholes option pricing model. The following ranges of assumptions were used in the models to determine fair value:

	September 30,  2018		December 31,  2017
Dividend rate range		—		—
Risk-free rate range		2.9% - 3.0%		2.0% to 2.3%
Expected life (years) range		6.0 - 6.7		2.6 to 6.6
Expected volatility range		64.5% - 65.4%		72.5% to 95.7%

The following table presents the financial assets measured at fair value on a nonrecurring basis as of September 30, 2018 and December 31, 2017 (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)
September 30, 2018
Impaired loans	$	30,005	$	—	$	—	$	30,005
December 31, 2017
Impaired loans	$	6,087	$	—	$	—	$	6,087

There were no liabilities measured at fair value on a nonrecurring basis as of September 30, 2018 and December 31, 2017.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments, other than investment in unconsolidated entity.

As of September 30, 2018 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	19,214	$	19,214	$	19,214	$	—	$	—
Finance receivables		165,585		165,585		—		—		165,585
Marketable investments		1,233		1,233		688		—		545
Warrant assets		2,064		2,064		—		—		2,064
Financial Liabilities
Warrant liability	$	15	$	15	$	—	$	—	$	15

As of December 31, 2017 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	30,557	$	30,557	$	30,557	$	—	$	—
Finance receivables		151,995		151,995		—		—		151,995
Marketable investments		1,856		1,856		1,256		—		600
Warrant assets		987		987		—		—		987
Financial Liabilities
Warrant liability	$	91	$	91	$	—	$	—	$	91

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Note 10. Subsequent Events

GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued (“Subsequent Events”) as well as the date through which an entity has evaluated Subsequent Events. There are two types of Subsequent Events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, (“Recognized Subsequent Events”). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (“Non-Recognized Subsequent Events”).

Recognized Subsequent Events

On October 10, 2018, Quest announced that its subsidiary, Summit, completed the acquisition of the assets of Hooper. The transaction was completed after Summit’s bid was declared the winner of an auction process conducted pursuant to section 363 of the bankruptcy code. As discussed in Note 3, the Company received $15.6 million of cash proceeds from the sale, with an additional $0.2 million of cash expected in the coming months. Accordingly, the Company recognized a $2.5 million impairment charge during the three months ended September 30, 2018 and recorded the Hooper finance receivable at cash proceeds received of $15.6 million.

On October 31, 2018, ABT announced that it entered into an asset purchase agreement with Best. As discussed in Note 3, upon Bankruptcy Court approval and closing of the transaction, the Company will receive (i) $500,000, paid over ten years in equal quarterly installments, plus (ii) a ten percent royalty on ABT’s net sales, including any commercialized improvements made to ABT’s technology, paid quarterly for the ten year period from closing. Accordingly, the Company recognized impairment expense of $5.3 million to write off the second lien term loan. Of the $5.3 million, $2.0 million reflects an accrual for estimated exit costs. The Company also recorded an allowance for credit losses of $5.0 million on the first lien in order to reflect the loan at its estimated fair value of $5.8 million as of September 30, 2018.

Non-Recognized Subsequent Events

On October 12, 2018, SWK Funding entered into a credit agreement pursuant to which the Company provided to Acerus Pharmaceuticals Corporation (“Acerus”) a term loan in the maximum principal amount of $11.0 million. The Company funded $9.0 million at closing with the remaining $2.0 million becoming available upon Acerus’ satisfaction of certain future conditions. The loan matures on October 11, 2023. The loan bears interest at the greater of (a) three-month LIBOR and (b) 1.5 percent, subject to a ceiling of 4.25 percent, plus a margin of 10.5 percent, payable in cash, quarterly in arrears, beginning on November 15, 2018. In connection with the loan, the Company also received a warrant to purchase 5,331,563 shares of Acerus common stock at a strike price of CDN $0.80 per share. 

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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, 2017 (“Annual Report”), as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this report.

Overview

We evaluate and invest in a broad range of healthcare related companies and products with innovative intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical industries (together “life science”) and 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 treats 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 book value by generating income from three sources:

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

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

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

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

The majority of our transactions are 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 and from our revolving credit faculty.

In addition, we provide non-discretionary investment advisory services to institutional clients in separately managed accounts to similarly invest in life-science finance. 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 with investors other than our investment advisory clients. In those instances, we do not expect to earn investment advisory income from the participations of such investors.

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

As of November 8, 2018, we have executed 31 transactions, deploying approximately $460 million, across a variety of opportunities. In counting our transactions, we generally consider a series of transactions with one partner company as a single transaction. In eleven of the transactions, we participated alongside other investors; our investment advisory clients co-invested in three of these transactions. The other twenty transactions were completed solely by SWK. 

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The table below provides an overview of our outstanding transactions as of September 30, 2018 (in thousands, except rate, share and per share data):

Royalty Purchases and Financings	License Technology	Footnote	Funded Amount		GAAP Balance		Rate	Revenue Recognized
								YTD		Q3
Beleodaq®	Oncology treatment		$	7,600	$	7,529	N/A	$	294	$	294
Besivance®	Ophthalmic antibiotic		6,000		2,338		N/A	220		70
Cambia®	NSAID migraine treatment	(1)	8,500		6,315		N/A	748		215
Forfivo XL®	Depressive disorder treatment		6,000		4,937		N/A	1,530		462
Narcan®	Opioid overdose treatment		17,500		763		N/A	1,963		390
Secured Royalty Financing (Marketable Investment)	Women’s health	(2)	3,000		545		11.5%	—		—
Tissue Regeneration Therapeutics	Umbilical cord banking		3,250		3,408		N/A	336		95

			Maturity			GAAP			Revenue Recognized
Term Loans	Type	Footnote	Date	Principal		Balance		Rate	YTD		Q3
ABT Molecular Imaging, Inc.	First Lien	(2), (3)	06/30/16	$	5,783	$	5,783	7.3%	$	249	$	—
ABT Molecular Imaging, Inc.	Second Lien Royalty	(3)	10/08/21	—		—		N/A	—		—
B&D Dental Corporation	First Lien	(2), (4)	12/10/18	8,148		8,117		14.0%	—		—
B&D Dental Corporation	Equipment Loan	(4)	03/31/20	49		49		16.3%	7		1
CeloNova BioSciences, Inc.	First Lien		07/31/21	7,500		7,640		13.0%	770		261
DxTerity Diagnostics, Inc.	First Lien		04/06/20	9,266		9,379		13.3%	1,124		359
Epica International, Inc.	First Lien		07/23/23	12,200		12,086		10.5%	268		268
EyePoint Pharmaceuticals, Inc.	First Lien		03/27/23	20,000		19,490		12.0%	1,320		743
Hooper Holmes, Inc.	First Lien	(2), (5)	05/11/21	15,569		15,569		17.3%	153		—
Hooper Holmes, Inc.	First Lien	(5)	05/11/21	—		—		13.5%	12		—
Imprimis Pharmaceuticals, Inc.	First Lien		07/19/21	9,720		9,356		12.0%	1,096		380
Keystone Dental, Inc.	First Lien		05/20/21	15,000		15,058		11.5%	2,005		553
OraMetrix, Inc.	First Lien	(6)	12/15/21	—		—		12.0%	1,048		—
Parnell Pharmaceuticals	First Lien	(7)	11/22/20	—		—		13.0%	2,152		287
Solsys Medical LLC	First Lien		10/26/22	15,096		15,210		11.8%	1,505		520
Tenex Health, Inc.	First Lien		06/30/21	7,472		7,520		13.0%	699		227
Thermedx, LLC	First Lien		05/05/21	3,500		4,466		N/A	749		222
Veru, Inc.	Synthetic Royalty		03/05/25	10,000		10,572		N/A	1,215		535

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		Funded	GAAP	Change in Fair Value
Equity Securities	Footnote	Amount	Balance	YTD			Q3
Cancer Genetics (Common Stock)		—	688	$	(536	)	$	99
Hooper Holmes, Inc. (Common Stock)		—	—	(29		)	1

		Number of	Exercise Price per	GAAP		Change in Fair Value
Warrants to Purchase Stock	Footnote	Shares	Share	Balance		YTD			Q3
ABT Molecular Imaging, Inc.	(3)	5,000,000	0.20	$	—	$	—		$	—
B&D Dental Corporation	(4)	225	0.01	—		—			—
CeloNova BioSciences, Inc.		TBD	0.01	—		—			—
DxTerity Diagnostics, Inc.		420,673	2.08	—		—			—
Epica International, Inc.		TBD	TBD	—		—			—
EyePoint Pharmaceuticals, Inc. (Tranche 1)		409,091	1.10	1,206		948			567
EyePoint Pharmaceuticals, Inc. (Tranche 2)		77,721	1.93	208		110			100
Hooper Holmes, Inc. (Tranche 1)	(5)	—	—	—		(270		)	13
Hooper Holmes, Inc. (Tranche 2)	(5)	—	—	—		(96		)	5
Imprimis Pharmaceuticals, Inc.		373,847	2.08	650		228			135
Keystone Dental, Inc.		793,651	1.26	—		—			—
OraMetrix, Inc.	(6)	690,496	0.62	—		—			—
SolSys Medical LLC		1,209,068	0.99	—		—			—
SolSys Medical LLC		2,284,793	0.89			—			—
Tenex Health, Inc.		2,693,878	0.37	—		—			—
Tribute Pharmaceuticals, Inc.		1,843,016	Various	—		(115		)	(22		)

			Revenue
	Assets		YTD		Q3
Total Finance Receivables	$	165,585	$	19,463	$	5,882
Total Marketable Securities	1,233		—		—
Fair Value of Warrant Assets	2,064		—		—
Total Assets/Revenues	$	168,882	$	19,463	$	5,882

(1)	Provision for credit loss of $1,179 was taken during 2018.
(2)	Investment on nonaccrual.
(3)	An impairment charge of $5,257 (which includes $1,972 estimated costs to sell) on the second lien and an allowance for credit losses of $5,000 on the first lien was recognized during Q3. On October 31, 2018, ABT announced that it entered into an asset purchase agreement with Best.
(4)	B&D is evaluating strategic alternatives for the business. The loan is currently in default.
(5)	Impairment charge of $2,542 was taken in Q3 2018, and the loan was written down to its realizable value of $15,569. Warrants and common stock were written down to zero.
(6)	OraMetrix repaid the term loan on May 1, 2018, in conjunction with its sale to Dentsply Sirona, Inc.
(7)	Parnell repaid the term loan on July 30, 2018.

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

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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, 2017, filed with the SEC on March 29, 2018. 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, 2018, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Recent Accounting Pronouncements

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

Comparison of the Three Months Ended September 30, 2018 and 2017 (in millions)

	Three Months Ended September 30,						Change
	2018			2017
Revenues	$	5.9		$	5.5		$	0.4
Provision for credit losses and impairment expense	12.8			—			12.8
General and administrative	1.3			1.5			(0.2		)
Other income (expense), net	0.8			(0.2		)	1.0
Provision (benefit) for income taxes	(1.7		)	1.1			(2.8		)
Consolidated net income (loss)	(5.7		)	2.8			(8.5		)

Revenues

We generated revenues of $5.9 million for the three months ended September 30, 2018, which consisted of interest and fees earned on our finance receivables. We generated revenues of $5.5 million for the three months ended September 30, 2017, driven primarily by $5.5 million in interest and fees earned on our finance receivables. The increase in revenue is primarily due to a $0.4 million increase in interest and fees earned on new and existing finance receivables and a larger portfolio.

Provision for Credit Losses and Impairment Expense

During the three months ended September 30, 2018, we recognized impairment expense of $2.5 million and $5.3 million related to the Hooper first lien and ABT second lien, respectively. Of the $5.3 million impairment expense related to ABT, $2.0 million reflects an accrual of estimated exit costs expected to be paid upon completion of the sale process. We also recognized a credit loss allowance of $5.0 million in order to reflect the ABT first lien at its estimated fair value of $5.8 million as of September 30, 2018 (please refer to Item 1. Financial Statements, Notes 3 and 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information regarding the allowance for credit losses and impairments taken during the three months ended September 30, 2018). We did not recognize an allowance for credit losses or impairment expense during the three months ended September 30, 2017.

General and Administrative

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 decreased to $1.3 million for the three months ended September 30, 2018 from $1.5 million for the three months ended September 30, 2017, which was primarily due to a $0.9 million decrease in the performance-based bonus accrual. The decrease was offset by a $0.6 million increase in professional fees related to due diligence on a potential acquisition that was not consummated, legal fees related to the section 363 sale of Hooper, and a $0.1 million increase in interest expense related to the credit facility.

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Other Income (Expense), Net

Other income (expense), net for the three months ended September 30, 2018 reflected a net fair market value gain of $0.8 million on our warrant derivatives and a net fair market value gain of $0.1 million on our equity securities. During the three months ended September 30, 2018, an aggregate $0.1 million loss was realized from the write off of our Hooper warrants and equity securities.

Other income (expense) for the three months ended September 30, 2017, reflected a net fair market value loss of $0.2 million on our warrant derivatives.

Income Tax (Benefit) Expense

We recognized an income tax benefit of $1.7 million and income tax expense of $1.1 million during the three months ended September 30, 2018 and 2017, respectively. The income tax benefit resulted from the operating loss recognized during the quarter. On December 22, 2017, new tax legislation was signed into law reducing the U.S. corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. This change in federal tax law also impacted the comparability of our tax (benefit) expense between the two periods. 

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Comparison of the Nine Months Ended September 30, 2018 and 2017 (in millions)

	Nine Months Ended September 30, 2018					Change
	2018		2017
Revenues	$	19.5	$	26.4		$	(6.9	)
Provision for credit losses and impairment expense	14.0		—			14.0
General and administrative	3.7		3.1			0.6
Other income (expense), net	0.2		(0.6		)	0.8
Provision for income taxes	0.4		6.2			(5.8		)
Consolidated net income	1.6		16.6			(15.0		)

We generated revenues of $19.5 million for the nine months ended September 30, 2018, which consisted of interest and fees earned on our finance receivables. We generated revenues of $26.4 million for the nine months ended September 30, 2017, which consisted of $15.8 million in interest and fees earned on our finance receivables and $10.5 million in income related to our investment in an unconsolidated partnership. The net $6.9 million decrease in revenue is primarily driven by the net proceeds received related to our investment in an unconsolidated entity, which on February 23, 2017 sold its U.S. marketing rights to its underlying intellectual property. Please refer to Part I. Financial Information, Item 1. Financial Statements, Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information on the Holmdel transaction. The $3.7 million increase in interest and fees on our finance receivables is due to our increased portfolio size.

Provision for Credit Losses and Impairment Expense

During the nine months ended September 30, 2018, we recognized impairment expense of $2.5 million and $5.3 million related to the Hooper first lien and ABT second lien, respectively. Of the $5.3 million impairment expense related to ABT, $2.0 million reflects an accrual of estimated exit costs expected to be paid upon completion of the sale process. In addition to recognizing an allowance for credit losses of $5.0 million in order to reflect the ABT first lien at its estimated fair value of $5.8 million as of September 30, 2018, we also recognized an allowance for credit losses of $1.2 million on a royalty purchase (please refer to Item 1. Financial Statements, Notes 3 and 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information regarding the allowance for credit losses and impairments taken during the nine months ended September 30, 2018). We did not recognize an allowance for credit losses or impairment expense during the nine months ended September 30, 2017.

General and Administrative

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff, Board of Directors, legal and audit expenses, and corporate governance. General and administrative expenses increased to $3.7 million for the nine months ended September 30, 2018 from $3.1 million for the nine months ended September 30, 2017, which was primarily due to an increase of $0.6 million in professional fees related to due diligence on a potential acquisition that was not consummated, legal fees related to the section 363 sale of Hooper, and a $0.1 million increase in interest expense related to the credit facility. The increase was slightly offset by a $0.3 million decrease in the performance-based bonus accrual.

Other Income (Expense), Net

 Other income (expense), net for the nine months ended September 30, 2018, reflected a net fair market value gain of $0.9 million on our warrant derivatives and a net fair market value loss of $0.6 million on our equity securities. During the nine months ended September 30, 2018, an aggregate $0.1 million loss was realized on the write off of our Hooper warrants and equity securities.

Other income (expense), net for the nine months ended September 30, 2017, reflected a net fair market value loss of $0.8 million on our warrant derivatives and a $0.2 million realized gain on the sale of equity securities.

Income Tax (Benefit) Expense

As of September 30, 2018, we had NOLs for federal income tax purposes of $377 million. The federal NOL carryforwards, if not offset against future income, will expire by 2032, with the majority expiring by 2021. We also had federal research carryforwards of $2.7 million, which will expire by 2029. We recognized $0.4 million of deferred income tax expense for the nine months ended September 30, 2018. We recognized $6.2 million of deferred income tax expense for the nine months ended September 30, 2017. The decrease in deferred income tax expense was primarily due to a reduction in net income. On December 22, 2017, new tax legislation was signed into law reducing the U.S. corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. This change in federal tax law also impacted the comparability of our tax (benefit) expense between the two periods. 

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Liquidity and Capital Resources

As of September 30, 2018, we had $19.2 million in cash and cash equivalents, compared to $30.6 million in cash and cash equivalents as of December 31, 2017. The primary driver of the net decrease in our cash balance was new and add-on investment funding of $68.4 million, offset by interest and fee payments of $42.5 million earned on our finance receivables, including $13.7 million of royalty-related receipts from our Narcan® investment and $22 million related to the payoff of two finance receivables.

Our ability to generate cash in the future depends primarily upon our success in implementing our 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. primarily 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, realizing capital appreciation from equity-related investments in the life science sector.

As of September 30, 2018, our portfolio contains $165.6 million of finance receivables and $1.2 million of marketable investments. We expect these assets to generate positive cash flows in 2018. We continue to evaluate multiple attractive opportunities that, if consummated, we believe 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 2018.

We entered into a $20 million revolving credit facility in June 2018. We intend to borrow funds to make investments to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities. The total undrawn amount of the credit facility as of September 30, 2018 was $20 million.

Off Balance Sheet Arrangements

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

The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the partner company defaults, and the value of any existing collateral becomes worthless. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

As of September 30, 2018, our unfunded commitments were as follows (in millions):

CeloNova BioSciences, Inc.	$	5.0
Epica International, Inc.		1.8
Tenex Health, Inc.		1.0
Veru, Inc.		2.0
Total unfunded commitments	$	9.8

All unfunded commitments are contingent upon reaching an established revenue threshold or other performance metrics on or before a specified date or period of time per the terms of the royalty purchase or credit agreements, and in the case of loan transactions, are only subject to being advanced as long as an event of default does not exist.

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ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

During the nine months ended September 30, 2018, 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, 2018 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 of our investments.

We recently closed on a revolving credit facility. As we borrow funds to make additional investments, our income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have debt outstanding, our cost of funds would increase, which could reduce our income, especially to the extent we continue to hold fixed rate investments. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. Adverse developments resulting from changes in interest rates or hedging transactions could have a materially adverse effect on our business, financial condition and results of operations.

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 Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

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

Changes in Internal Control over Financial Reporting

There have been no changes during the nine months ended September 30, 2018 in our internal control over financial reporting that have materially affected, or are 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, 2017, filed with the SEC on March 29, 2018. 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, 2017.

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

Exhibit				Filing	Filed
Number	Description	Form	Exhibit	Date	Herewith
31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.01	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*				X
32.02	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*				X
101.INS+	XBRL Instance				X
101.SCH+	XBRL Taxonomy Extension Schema				X
101.CAL+	XBRL Taxonomy Extension Calculation				X
101.DEF+	XBRL Taxonomy Extension Definition				X
101.LAB+	XBRL Taxonomy Extension Labels				X
101.PRE+	XBRL Taxonomy Extension Presentation				X

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

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

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 9, 2018.

SWK Holdings Corporation
By:	/s/ Winston L. Black
	Winston L. Black
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Charles M. Jacobson
	Charles M. Jacobson
	Chief Financial Officer
	(Principal Financial Officer)

30