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SWK Holdings Corporation Announces 2018 First Quarter Financial Results

May 15, 2018

-- Total revenues of $6.8 million for the first quarter of 2018 compared to $14.9 million for the first quarter of 2017. -- Net income attributable to SWK Stockholders of $3.6 million, or $0.28 per share, and non-GAAP adjusted net income of $4.4 million, or $0.34 per share for the first quarter of 2018. -- Closed two financings deploying $25.0 million with additional $4.3 million deployed through existing portfolio company milestones and add-ons. -- Book value of $16.21 per share as of March 31, 2018 vs. $15.93 per share as of December 31, 2017.

DALLAS, May 15, 2018 (GLOBE NEWSWIRE) -- SWK Holdings Corporation (OTC:SWKH.OB) (“SWK” or the “Company”), a life science focused specialty finance company, announced its first quarter 2018 financial results.

First Quarter 2018 Highlights:

-- Reported total revenues of $6.8 million for the quarter, compared to $14.9 million for the first quarter of 2017. -- Reported adjusted net income of $4.4 million, or $0.34 per diluted share, for the quarter, as compared to $9.4 million, or $0.72 per diluted share, for the first quarter of 2017. -- Total income producing assets (defined as finance receivables, marketable securities and investment in unconsolidated subsidiaries; less non-controlling interests) were $167.6 million as of March 31, 2018, compared to $153.9 million as of December 31, 2017.

“As previously announced, we closed two new transactions and advanced additional capital to current partners during the first quarter,” stated Winston Black, Chief Executive Officer of SWK. “Our pipeline of opportunities remains full, and we continue to make progress on securing additional, non-dilutive balance sheet capital.”

Note:

-- All references to growth rate percentages and shares compare the results of the period to those of the prior year comparable period. -- The Company reports its financial results in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance. -- Non-GAAP adjusted net income and its components and non-GAAP adjusted basic and diluted EPS are not, and should not be viewed as, substitutes for GAAP net income and its components and basic and diluted EPS. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, non-GAAP adjusted net income and its components (unlike GAAP net income and its components) may not be comparable to the calculation of similar measures of other companies.

Portfolio Overview

As of March 31, 2018, the Company’s total income producing assets were $167.6 million as compared to $153.9 million as of December 31, 2017.

(in thousands) March 31, December 31, ---------- ------------ 2018 2017 ---------- ------------ Finance receivables $ 165,843 $ 151,995 Marketable investments 1,713 1,856 Total income producing assets $ 167,556 $ 153,851 Warrant Assets 1,519 987 Total Portfolio Balance $ 169,075 $ 154,838 - ------- - ------- --

During the quarter, the Company deployed $25.0 million into two new term loan financings. One of the Company’s existing royalty transactions achieved a revenue-based milestone, triggering a $15.1 million payment, which includes the quarter’s royalty. SWK also supported existing portfolio companies’ working capital needs through aggregate $4.3 million add-on term loan funding.

As of May 10, 2018, the Company and its partners have executed transactions with 28 different parties under its specialty finance strategy, funding an aggregate $405 million since 2012 in various financial products across the life science sector. At the end of the first quarter, the weighted average projected effective yield of the finance receivables portfolio was 14.6%. The projected effective yield is the rate at which income is expected to be recognized pursuant to the Company’s revenue recognition policies, if all payments are received pursuant to the terms of the finance receivables.

Total portfolio investment activity as of and for the three months ended March 31, 2018 was as follows (in thousands):

Three Months Ended March 31, 2018 2017 ----------- ----------- Beginning portfolio $ 154,838 $ 136,983 Early pay-offs — — Impairment expense and provision for loan credit losses (1,179 ) — Interest paid-in-kind 47 383 Investment in finance receivables 29,250 3,638 Loan discount amortization and fee accretion 907 669 Changes in unconsolidated entity investment, net of noncontrolling interest — (6,985 ) Net unrealized gain (loss) on marketable investments and derivatives 151 1,347 Principal payments received on investments (716 ) (24 ) Proceeds/realized gains from sale of investments — (101 ) Royalty paydowns (14,222 ) (232 ) Warrant investments, net of cancellations 258 — --------- - Ending portfolio $ 169,075 $ 135,678 - ------- - - ------- -

Results of Operations

Revenues

We generated revenues of $6.8 million for the three months ended March 31, 2018, driven primarily by $6.8 million in interest and fees earned on our finance receivables. We generated revenues of $14.9 million for the three months ended March 31, 2017, driven primarily by $4.7 million in interest and fees earned on our finance receivables and $10.2 million in income related to our investment in an unconsolidated partnership. The decrease in revenue is primarily due to a $10.2 million decrease in income from 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 Item 1. Financial Statements, Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 for further information on the Holmdel transaction). This was offset by a $2.2 million increase in interest and fees earned on new and existing finance receivables, including a $0.7 million increase in royalty revenue on our Narcan® investment. Royalty revenue from our Narcan® investment will be substantially less going forward, as we reached the 1.5x cash on cash royalty cap during the three months ended March 31, 2018.

Provision for Credit Losses

We recognized an allowance for credit loss on a royalty purchase of $1.2 million during the three months ended March 31, 2018 as we reduced expectations for future royalty receipts with respect to sales of Cambia®. We did not recognize an allowance for credit losses during the three months ended March 31, 2017.

Please refer to Item 1. Financial Statements, Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 for further information regarding the provision for credit loss recognized during the three months ended March 31, 2018.

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 $1.2 million for the three months ended March 31, 2018 from $0.7 million for the three months ended March 31, 2017, which was primarily due to an increase in the performance-based bonus accrual.

Other Income (Expense), Net

Other income (expense), net for the three months ended March 31, 2018 reflected a net fair market value gain of $0.3 million on our warrant derivatives and a net fair market value loss of $(0.1) million on our equity securities.

Other income (expense), net for the three months ended March 31, 2017 reflected a net fair market value loss of $(0.5) million on our warrant derivatives and a $0.2 million realized gain on the sale of equity securities.

Income Tax Provision

We recognized $1.0 million of deferred income tax expense for the three months ended March 31, 2018. We recognized $3.7 million deferred income tax expense for the three months ended March 31, 2017. The decrease in deferred income tax expense was primarily due to a reduction in net income, coupled with a change in the federal statutory tax rate signed into law on December 22, 2017. The new legislation decreased the U.S. corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018.

Liquidity and Capital Resources

As of March 31, 2018, we had $21.5 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 $29.3 million, offset by interest and fee payments of $15.0 million earned on our finance receivables, including $13.7 million of royalty-related receipts from our Narcan® investment.

As of March 31, 2018, we had $14.0 million of unfunded commitments outstanding.

Adjusted Net Income

Net income in accordance with GAAP for the three-month period ended March 31, 2018, was $3.6 million, or $0.28 per diluted share. The following tables provide a reconciliation of SWK’s reported (GAAP) consolidated net income to SWK’s adjusted net income attributable to SWK Holdings Corporation Stockholders (non-GAAP) for the three months ended March 31, 2018 and March 31, 2017:

(in thousands, except per share data) Three Months Ended March 31, 2018 2017 --------- --------- Consolidated net income $ 3,644 $ 10,268 Plus: income tax expense 954 3,706 Plus: loss on fair market value of equity securities 124 — Subtract: gain on fair market value of warrant assets (300 ) 472 ------- -------- Adjusted income before provision for income tax 4,298 14,446 Adjusted provision for income tax — — ------- - -------- Non-GAAP consolidated net income 4,422 14,446 Non-GAAP adjusted net income attributable to non-controlling interest — 5,032 Non-GAAP adjusted net income attributable to SWK Holdings Corporation Stockholders $ 4,422 $ 9,414 - ----- - - ------ Non-GAAP adjusted basic income per share $ 0.34 $ 0.72 Non-GAAP adjusted diluted income per share $ 0.34 $ 0.72 Weighted average shares - Basic 13,053 13,144 ------- -------- Weighted average shares - Diluted 13,057 13,147 ------- --------

In the presentation above, management has made adjustments for the following non-cash items: (i) fair-market value of warrants and equity securities as mark to market changes are non-cash, and (ii) income taxes as the Company has substantial net operating losses to offset against future income.

About SWK Holdings Corporation

SWK Holdings Corporation is a specialized finance company with a focus on the global healthcare sector. SWK partners with ethical product marketers and royalty holders to provide flexible financing solutions at an attractive cost of capital to create long-term value for both SWK’s business partners and its investors. SWK believes its financing structures achieve an optimal partnership for companies, institutions and inventors seeking capital for expansion or capital and estate planning by allowing its partners to monetize future cash flow with minimal dilution to their equity stakes. Additional information on the life science finance market is available on the Company’s website at www.swkhold.com.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plan,” “will,” “may,” “look forward,” “intend,” “guidance,” “future” or similar expressions are forward-looking statements. Because these statements reflect SWK’s current views, expectations and beliefs concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that many factors, as more fully described under the caption “Risk Factors” in SWK’s Form 10-K, Form 10-Q and Form 8-K filings with the Securities and Exchange Commission and as otherwise enumerated herein or therein, could affect the Company’s future financial results and could cause actual results to differ materially from those expressed in such forward-looking statements. The forward-looking statements in this press release are qualified by these risk factors. These are factors that, individually or in the aggregate, could cause the Company’s actual results to differ materially from expected and historical results. You should not place undue reliance on any forward-looking statements, which speak only as of the date they are made. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

SWK HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share data) Derived from unaudited financial statements March 31, December 2018 31, 2017 ----------- ----------- ASSETS Cash and cash equivalents $ 21,451 $ 30,557 Accounts receivable 1,579 1,637 Finance receivables, net 165,843 151,995 Marketable investments 1,713 1,856 Deferred tax asset 21,771 22,725 Warrant assets 1,519 987 Other assets 314 126 --------- - --------- - Total assets $ 214,190 $ 209,883 - ------- - - ------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accrued liabilities $ 2,450 $ 1,840 Warrant liability 65 91 --------- - --------- - Total liabilities 2,515 1,931 Stockholders’ equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2018 and — — December 31, 2017, respectively Common stock, $0.001 par value; 250,000,000 shares authorized; 13,059,190 and 13,053,422 shares issued and outstanding at 13 13 March 31, 2018 and December 31, 2017, respectively Additional paid-in-capital 4,433,668 4,433,589 Accumulated deficit (4,222,006) (4,225,863) Accumulated other comprehensive income — 213 --------- - --------- - Total SWK Holdings Corporation stockholders’ equity 211,675 207,952 Non-controlling interests in consolidated entities — — --------- - --------- - Total stockholders’ equity 211,675 207,952 --------- - --------- - Total liabilities and stockholders’ equity $ 214,190 $ 209,883 - ------- - - ------- -

SWK HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Derived from unaudited financial statements Three Months Ended March 31, ---------------------- 2018 2017 ---------- ---------- Revenues Finance receivable interest income, including fees $ 6,817 $ 4,656 Income related to investments in unconsolidated entity — 10,204 Other 5 4 -------- - -------- - Total revenues 6,822 14,864 -------- - -------- - Costs and expenses: Provision for loan credit losses 1,179 — General and administrative 1,221 661 -------- - -------- - Total costs and expenses 2,400 661 -------- - -------- - Other income (expense), net Unrealized net gain (loss) on derivatives 300 (472 ) Unrealized net loss on equity securities (124 ) — -------- - -------- - Gain on sale of marketable securities — 243 Income before provision for income taxes 4,598 13,974 Provision for income taxes 954 3,706 -------- - -------- - Consolidated net income 3,644 10,268 -------- - -------- - Net income attributable to non-controlling interests — 5,032 -------- - -------- - Net income attributable to SWK Holdings Corporation stockholders $ 3,644 $ 5,236 - ------ - - ------ - Net income per share attributable to SWK Holdings Corporation stockholders: Basic $ 0.28 $ 0.40 - ------ - - ------ - Diluted $ 0.28 $ 0.40 - ------ - - ------ - Weighted Average Shares: Basic 13,053 13,144 -------- - -------- - Diluted 13,057 13,147 - ------ - - ------ -

SWK HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Derived from unaudited financial statements Three Months Ended March 31, ----------------------- 2018 2017 ---------- ----------- Cash flows from operating activities: Consolidated net income $ 3,644 $ 10,268 Adjustments to reconcile net income to net cash provided by operating activities: Income from investment in unconsolidated entity — (10,204 ) Provision for loan credit losses 1,179 — Deferred income taxes 954 3,706 Change in fair value of warrants (300 ) 472 Change in fair value of equity securities 124 — Gain on sale of marketable securities — (243 ) Loan discount amortization and fee accretion (837 ) (568 ) Interest paid-in-kind (47 ) (383 ) Stock-based compensation 79 78 Interest income in excess of cash received (70 ) — Other 4 4 Changes in operating assets and liabilities: Accounts receivable 58 (88 ) Other assets (189 ) (112 ) Accounts payable and other liabilities 610 48 -------- - --------- - Net cash provided by operating activities 5,209 2,978 -------- - --------- - Cash flows from investing activities: Cash distributions from investment in unconsolidated entity — 17,189 Proceeds from sale of available-for-sale marketable securities — 345 Investment in finance receivables (29,250 ) (3,638 ) Repayment of finance receivables 14,918 225 Marketable investment principal payment 19 24 Other (2 ) (3 ) -------- - --------- - Net cash (used in) provided by in investing activities (14,315 ) 14,142 -------- - --------- - Cash flows from financing activities: Distribution to non-controlling interests — (8,788 ) -------- - --------- - Net cash used in financing activities — (8,788 ) -------- - --------- - Net (decrease) increase in cash and cash equivalents (9,106 ) 8,332 Cash and cash equivalents at beginning of period 30,557 32,182 -------- - --------- - Cash and cash equivalents at end of period $ 21,451 $ 40,514 - ------ - - ------- -

CONTACT: SWK Investor Relations at (972) 687-7250 or investor.relations@swkhold.com.

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