SAFEGUARD SCIENTIFICS INC, 10-K filed on 3/1/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 25, 2019
Jun. 30, 2018
Document Documentand Entity Information [Abstract]      
Entity Registrant Name SAFEGUARD SCIENTIFICS INC    
Entity Central Index Key 0000086115    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   20,652,338  
Trading Symbol SFE    
Entity Emerging Growth Company false    
Entity Small Business true    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Shell Company false    
Entity Current Reporting Status Yes    
Entity Public Float     $ 237,111,560
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current Assets:    
Cash and cash equivalents $ 7,703 $ 20,751
Restricted cash 500 0
Marketable securities 37,955 4,452
Trading securities 0 3,761
Prepaid expenses and other current assets 2,669 4,644
Total current assets 48,827 33,608
Property and equipment, net 808 1,513
Ownership interests in and advances to partner companies 95,585 134,691
Long-term restricted cash equivalents 0 6,336
Other assets 517 316
Total Assets 145,737 176,464
Current Liabilities:    
Accounts payable 165 155
Accrued compensation and benefits 3,433 3,321
Accrued expenses and other current liabilities 2,182 1,851
Credit facility - current 22,100 0
Credit facility repayment feature 5,060 0
Convertible senior debentures 0 40,485
Total current liabilities 32,940 45,812
Other long-term liabilities 2,804 3,535
Credit facility - non-current 43,014 45,321
Total Liabilities 78,758 94,668
Commitments and contingencies (Note 12)
Equity:    
Preferred stock, $0.10 par value; 1,000 shares authorized 0 0
Common stock, $0.10 par value; 83,333 shares authorized; 21,573 issued at December 31, 2018 and 2017, respectively 2,157 2,157
Additional paid-in capital 810,928 812,536
Treasury stock, at cost; 914 and 999 shares at December 31, 2018 and 2017, respectively (15,001) (17,308)
Accumulated deficit (731,105) (715,476)
Accumulated other comprehensive loss 0 (113)
Total Equity 66,979 81,796
Total Liabilities and Equity $ 145,737 $ 176,464
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.10 $ 0.10
Preferred stock, shares authorized 1,000,000 1,000,000
Common stock, par value $ 0.10 $ 0.10
Common stock, shares authorized 83,333,000 83,333,000
Common stock, shares issued 21,573,000 21,573,000
Treasury Stock, Shares 914,000 999,000
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]                    
General and administrative expense $ 2,618 $ 3,516 $ 5,148 $ 5,589 $ 3,940 $ 3,758 $ 4,486 $ 4,947 $ 16,871 $ 17,131
Operating loss (2,618) (3,516) (5,148) (5,589) (3,940) (3,758) (4,486) (4,947) (16,871) (17,131)
Other loss, net (193) (1,078) (2,452) (1,435) (120) (379) (89) 249 (5,158) (339)
Interest income 624 718 666 798 984 1,004 1,087 801 2,806 3,876
Interest expense (6,645) (3,310) (3,422) (2,690) (2,667) (2,643) (2,112) (1,198) (16,067) (8,620)
Equity income (loss) (7,791) 39,246 (14,540) 2,746 (12,985) (12,874) (23,497) (17,002) 19,661 (66,358)
Net loss before income taxes (16,623) 32,060 (24,896) (6,170) (18,728) (18,650) (29,097) (22,097) (15,629) (88,572)
Income tax benefit (expense) 0 0 0 0 0 0 0 0 0 0
Net loss $ (16,623) $ 32,060 $ (24,896) $ (6,170) $ (18,728) $ (18,650) $ (29,097) $ (22,097) $ (15,629) $ (88,572)
Net loss per share:                    
Basic (in dollars per share) $ (0.81) [1] $ 1.56 [1] $ (1.21) [1] $ (0.30) [1] $ (0.91) [1] $ (0.91) [1] $ (1.43) [1] $ (1.08) [1] $ (0.76) $ (4.34)
Diluted (in dollars per share) $ (0.81) [1] $ 1.56 [1] $ (1.21) [1] $ (0.30) [1] $ (0.91) [1] $ (0.91) [1] $ (1.43) [1] $ (1.08) [1] $ (0.76) $ (4.34)
Weighted average shares used in computing net loss per share:                    
Basic (in shares)                 20,544 20,430
Diluted (in shares)                 20,544 20,430
[1] Per share amounts for the quarters have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the average common shares outstanding during each period. Additionally, in regard to diluted per share amounts only, quarterly amounts may not add to the annual amounts because of the inclusion of the effect of potentially dilutive securities only in the periods in which such effect would have been dilutive, and because of the adjustments to net income (loss) for the dilutive effect of partner company common stock equivalents and convertible securities.
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net loss $ (15,629) $ (88,572)
Other comprehensive income (loss), before taxes:    
Share of other comprehensive income of equity method investments 113 318
Total comprehensive loss $ (15,516) $ (88,254)
v3.10.0.1
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($)
shares in Thousands, $ in Thousands
Total
Accumulated Deficit [Member]
AOCI Attributable to Parent [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Treasury Stock [Member]
Beginning Balance at Dec. 31, 2016 $ 169,777 $ (626,904) $ (431) $ 2,157 $ 816,016 $ (21,061)
Beginning Balance (in shares) at Dec. 31, 2016       21,573   1,209
Net loss (88,572) (88,572)        
Stock options exercised, net of tax withholdings (1)       (97) $ 96
Stock options exercised, net of tax withholdings (in shares)           6
Issuance of restricted stock, net of tax withholdings (38)       (3,695) $ 3,657
Issuance of restricted stock, net of tax withholdings (in shares)           (204)
Stock-based compensation expense 1,138       1,138  
Repurchase of convertible senior debentures (826)       (826)  
Other comprehensive income 318   318      
Ending Balance at Dec. 31, 2017 81,796 (715,476) (113) $ 2,157 812,536 $ (17,308)
Ending Balance (in shares) at Dec. 31, 2017       21,573   999
Net loss (15,629) (15,629)        
Stock options exercised, net of tax withholdings 0       (16) $ 16
Stock options exercised, net of tax withholdings (in shares)           0
Issuance of restricted stock, net of tax withholdings (267)       (2,558) $ 2,291
Issuance of restricted stock, net of tax withholdings (in shares)           (85)
Stock-based compensation expense 966       966  
Other comprehensive income 113   113      
Ending Balance at Dec. 31, 2018 $ 66,979 $ (731,105) $ 0 $ 2,157 $ 810,928 $ (15,001)
Ending Balance (in shares) at Dec. 31, 2018       21,573   914
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Cash Flows from Operating Activities:    
Net loss $ (15,629) $ (88,572)
Adjustments to reconcile to net cash used in operating activities:    
Depreciation 692 322
Amortization of debt discount 4,513 2,542
Equity (income) loss (19,661) 66,358
Loss from increase in fair value of derivative 4,541 0
Gain from observable price changes (1,415) 0
Other, net (2,032) (339)
Loss on sale of property and equipment 12 0
Stock-based compensation expense 966 1,138
Changes in assets and liabilities:    
Prepaid expenses and other current assets (2,065) (3,560)
Accounts payable, accrued expenses, and other (21) 628
Net cash used in operating activities (26,035) (20,805)
Cash Flows from Investing Activities:    
Acquisitions of ownership interests in companies (3,250) (15,101)
Proceeds from sales of and distributions from companies 67,387 16,604
Advances and loans to companies (13,104) (22,867)
Repayment of advances and loans to companies 10,730 0
Purchase of marketable securities (37,809) 0
Proceeds, from sales and maturities in securities 8,148 11,237
Proceeds from sales of property and equipment 1 0
Net cash provided by (used in) investing activities 32,103 (10,127)
Cash Flows from Financing Activities:    
Proceeds from credit facility 35,000 50,000
Issuance costs of credit facility (2,252) (5,696)
Repayments on credit facility (16,433) 0
Repurchase of convertible senior debentures (41,000) (14,455)
Tax withholdings related to equity-based awards (267) (223)
Issuance of Company common stock, net 0 1
Net cash provided by (used in) financing activities (24,952) 29,625
Net change in cash, cash equivalents and restricted cash equivalents (18,884) (1,307)
Cash, cash equivalents and restricted cash equivalents at beginning of period 27,087 28,394
Cash, cash equivalents and restricted cash equivalents at end of period $ 8,203 $ 27,087
v3.10.0.1
Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Safeguard and all of its subsidiaries in which a controlling financial interest is maintained. All intercompany accounts and transactions are eliminated in consolidation.
Principles of Accounting for Ownership Interests in Companies
The Company accounts for its interests in its partner companies using one of the following methods: Equity or Other. The accounting method applied is generally determined by the degree of the Company's influence over the entity, primarily determined by our voting interest in the entity.
In addition to holding voting and non-voting equity and debt securities, the Company also periodically makes advances to its partner companies in the form of promissory notes which are included in the Ownership interests in and advances to partner companies line item in the Consolidated Balance Sheets.
Equity Method. The Company accounts for partner companies whose results are not consolidated, but over which it exercises significant influence, under the equity method of accounting. Whether or not the Company exercises significant influence with respect to a partner company depends on an evaluation of several factors including, among others, representation of the Company on the partner company’s board of directors and the Company’s ownership level, which is generally a 20% to 50% interest in the voting securities of a partner company, including voting rights associated with the Company’s holdings in common, preferred and other convertible instruments in the company. Under the equity method of accounting, the Company does not reflect a partner company’s financial statements within the Company’s Consolidated Financial Statements; however, the Company’s share of the income or loss of such partner company is reflected in Equity income (loss) in the Consolidated Statements of Operations. The Company includes the carrying value of equity method partner companies in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets. Any excess of the Company’s cost over its underlying interest in the net assets of equity method partner companies that is allocated to intangible assets is amortized over the estimated useful lives of the related intangible assets. The Company reflects its share of the income or loss of the equity method partner companies on a one quarter lag. This reporting lag could result in a delay in recognition of the impact of changes in the business or operations of these partner companies.
When the Company’s carrying value in an equity method partner company is reduced to zero, the Company records no further losses in its Consolidated Statements of Operations unless the Company has an outstanding guarantee obligation or has committed additional funding to such equity method partner company. When such equity method partner company subsequently reports income, the Company will not record its share of such income until it exceeds the amount of the Company’s share of losses not previously recognized.
Other Method. We account for our equity interests in companies which are not accounted for under the equity method as equity securities without readily determinable fair values. We estimate the fair value of these securities based on our original cost less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Under this method, our share of the income or losses of such companies is not included in our Consolidated Statements of Operations. We include the carrying value of these investments in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets.
Accounting Estimates
The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. These estimates include the evaluation of the recoverability of the Company’s ownership interests in and advances to partner companies, the fair value of the credit facility repayment feature derivative, the current portion of the credit facility debt, the recoverability of deferred tax assets, stock-based compensation and commitments and contingencies. Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.
 
Certain amounts recorded to reflect the Company’s share of income or losses of partner companies accounted for under the equity method are based on unaudited results of operations of those companies and may require adjustments in the future when audits of these entities’ financial statements are completed.
It is reasonably possible that the Company’s accounting estimates with respect to the ultimate recoverability of the carrying value of the Company’s ownership interests in and advances to partner companies could change in the near term and that the effect of such changes on the financial statements could be material. At December 31, 2018, the Company believes the carrying value of the Company’s ownership interests in and advances to partner companies is not impaired, although there can be no assurance that the Company’s future results will confirm this assessment, that a significant write-down or write-off will not be required in the future or that a significant loss will not be recorded in the future upon the sale of a company.
Cash and Cash Equivalents and Marketable Securities
The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits that are readily convertible into cash. The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. Held-to-maturity securities are carried at amortized cost, which approximates fair value. Marketable securities consist of held-to-maturity securities, primarily consisting of government agency bonds, commercial paper and certificates of deposits. Marketable securities with a maturity date greater than one year from the balance sheet date are considered long-term. The Company has not experienced any significant losses on cash equivalents and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
Restricted Cash and Cash Equivalents
Restricted cash equivalents in prior periods represented cash required to be set aside by a contractual agreement as a shareholder representative for 2018 or with a bank as collateral for a letter of credit for 2017. During the first quarter of 2018, the restriction lapsed in connection with the termination of the related letter of credit. The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
 
December 31, 2018
 
December 31, 2017
 
(In thousands)
Cash and cash equivalents
$
7,703

 
$
20,751

Restricted cash
500

 

Long-term restricted cash equivalents

 
6,336

Total cash, cash equivalents, restricted cash and restricted cash equivalents
$
8,203

 
$
27,087


Financial Instruments
The Company’s financial instruments (principally cash and cash equivalents, marketable securities, accounts receivable, notes receivable, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The Company’s long-term debt is carried at cost.
Property and Equipment
Property and equipment generally represents leasehold improvements and is amortized over the shorter of the estimated useful lives or the expected remaining term of the lease.
Valuation of Credit facility repayment feature
The fair value of the Credit facility repayment feature (a Level 3 measurement) is determined quarterly based on the present value of make-whole interest payments that are expected to be paid based on cash flow estimates that include a probability weighted estimate of exit transactions, estimated follow-on deployments, estimated quarterly operating cash flows and other cash commitments that would result in qualified cash exceeding the $50 million threshold specified in the Credit facility.
Impairment of Ownership Interests In and Advances to Partner Companies
On a periodic basis, but no less frequently than quarterly, the Company evaluates the carrying value of its partner companies for possible impairment based on achievement of business plan objectives and milestones, the fair value of each partner company relative to its carrying value, the financial condition and prospects of the partner company and other relevant factors. The business plan objectives and milestones the Company considers include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as hiring of key employees or the establishment of strategic relationships. Management then determines whether there has been an other than temporary decline in the value of its ownership interest in the company. Impairment is measured as the amount by which the carrying value of an asset exceeds its fair value.
The fair value of privately held companies is generally determined based on the value at which independent third parties have invested or have committed to invest in these companies or based on other valuation methods, including discounted cash flows, valuation of comparable public companies and the valuation of acquisitions of similar companies.
Impairment charges related to equity method partner companies are included in Equity income (loss) in the Consolidated Statements of Operations. Impairment charges related to non-equity method partner companies and funds are included in Other income (loss), net in the Consolidated Statements of Operations.
The reduced cost basis of a previously impaired partner company accounted for using the Equity method are not written-up if circumstances suggest the value of the company has subsequently recovered.
Income Taxes
The Company accounts for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company measures deferred tax assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period of the enactment date. The Company provides a valuation allowance against the net deferred tax asset for amounts which are not considered more likely than not to be realized.
Net Income (Loss) Per Share
The Company computes net income (loss) per share using the weighted average number of common shares outstanding during each year. The Company includes in diluted net income (loss) per share common stock equivalents (unless anti-dilutive) which would arise from the exercise of stock options and conversion of other convertible securities and adjusted, if applicable, for the effect on net income (loss) of such transactions. Diluted net income (loss) per share calculations adjust net income (loss) for the dilutive effect of common stock equivalents and convertible securities issued by the Company’s consolidated or equity method partner companies.
Segment Information
The Company operates as one operating segment based upon the similar nature of its technology-driven partner companies, the functional alignment of the organizational structure, and the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 and related subsequent amendments outline a single comprehensive model to use to account for revenue arising from contracts with customers and supersede most current revenue recognition guidance. For public companies, the guidance was effective for annual periods beginning after December 15, 2017 and any interim periods that fall within that reporting period. For nonpublic companies, the guidance is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019 with early adoption permitted. As the new standard will supersede most existing revenue guidance, it could impact revenue and cost recognition for partner companies. Any change in revenue or cost recognition for partner companies could affect the Company's recognition of its share of the results of its equity method partner companies. On July 20, 2017, the SEC staff observer at the FASB’s Emerging Issues Task Force ("EITF") meeting announced that the SEC staff will not object if a private company equity method investee meeting the definition of a public business entity that otherwise would not meet the definition of a public business entity except for the inclusion of its financial statements or financial information in another entity’s filings with the SEC, uses private company adoption dates for the new revenue standard.  As a result, the Company's private, calendar year partner companies will adopt the new revenue standard for the year ending December 31, 2019.  The impact of adoption of the new revenue standard will be reflected in the Company’s financial results for the interim and annual reporting periods beginning in 2020 on a one quarter-lag basis.
In February 2016, the FASB issued ASU 2016-02, Leases. The guidance in ASU 2016-02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. The transitional guidance for adopting the requirements of ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities may elect to apply. The guidance in ASU 2016-02 will become effective for the Company on January 1, 2019. The Company anticipates making the accounting policy election not to recognize lease assets and lease liabilities for leases with a term of 12 months or less. As of December 31, 2018, the Company's only material long-term lease was for its corporate headquarters in Radnor, PA under a lease expiring in 2026. The Company also has immaterial office equipment leases expiring at various dates through 2020. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. Based on that evaluation, we expect to record as of January 1, 2019 a lease liability of approximately $2.9 million, a right-to-use asset of $2.2 million and to eliminate the deferred rent liability of $0.7 million currently included in other long-term liabilities.
v3.10.0.1
Ownership Interests in and Advances to Partner Companies and Funds
12 Months Ended
Dec. 31, 2018
Ownership Interests in and Advances to Partner Companies and Funds [Abstract]  
Ownership Interests in and Advances to Partner Companies
Ownership Interests in and Advances to Partner Companies
The following summarizes the carrying value of the Company’s ownership interests in and advances to partner companies.
 
December 31, 2018
 
December 31, 2017
 
(In thousands)
Equity Method:
 
 
 
Partner companies
$
64,097

 
$
107,646

Private equity funds
392

 
443

 
64,489

 
108,089

Other Method:
 
 
 
Partner companies
15,260

 
2,762

Private equity funds
511

 
1,334

 
15,771

 
4,096

Advances to partner companies
15,325

 
22,506

 
$
95,585

 
$
134,691


During 2018, the Company recognized impairments of $12.6 million related to Apprenda, Inc. CloudMine, Inc. and Brickwork, which are reflected in Equity income (loss) in the consolidated Statement of Operations. The impairments resulted from the discontinuance of operations or sale of the related entities.
In January 2018, Spongecell, Inc. merged into Flashtalking, a privately-held company. The Company received Flashtalking ordinary shares equal to approximately 10% of Flashtalking’s issued share capital at the time of the closing. The Company’s final number of Flashtalking shares are subject to customary indemnification agreements. The Company recorded its ownership interest in Flashtalking at $11.2 million, which reflects its fair value at the time of closing. The Company recognized a gain of $3.9 million on the transaction, which is included in Equity income (loss), and has an adjusted carrying value for its interest of approximately $11.0 million at December 31, 2018.
In January 2018, the Company received $0.6 million of proceeds from the sale of the assets of Aventura, Inc., a former partner company that ceased operations and was fully impaired in 2016. The Company recognized a gain of $0.6 million, which is reflected in Equity income (loss) in the Consolidated Statements of Operations.
In February 2018, Nexxt, Inc., formerly Beyond.com, repaid $10.5 million of principal outstanding on a note received in connection with the Company's sale of its interest back to Nexxt for $26.0 million in March 2017. In that transaction, the Company received $15.5 million in cash and a three-year, $10.5 million note for the balance due, which accrued interest at a rate of 9.5% per annum. Interest was payable annually and interest income was recorded as earned throughout the year. The $10.5 million note was fully reserved and had a carrying value of zero as of December 31, 2017. The Company waived the interest accrued to date in connection with the early repayment of the principal balance. The receipt of $10.5 million of cash in February 2018 resulted in a gain of $9.5 million, net of the interest accrued to date, which is included in Equity income (loss) in the Consolidated Statements of Operations.
The Company obtained shares of Invitae in August 2017 when Invitae, a public company, acquired former partner company Good Start Genetics, Inc. The Company recognized a net gain on the transaction of $4.3 million for the year ended December 31, 2017 and an additional gain on the transaction of $1.1 million for the year ended December 31, 2018 as shares were released from escrow. During 2018, the Company sold an aggregate of 492,340 shares of Invitae Corporation ("Invitae") common stock on the open market for proceeds of $3.7 million after transaction fees. There are an additional 45,989 shares of Invitae common stock that continue to be held in escrow at December 31, 2018.
In May 2018, Cask Data, Inc. sold substantially all of its assets to another entity. The Company received $11.5 million in cash proceeds in connection with the transaction, excluding $2.4 million of holdbacks and escrows that may be released on various dates on or before November 2019. The Company recognized a gain of $4.2 million on the transaction, which was included in Equity income (loss) in the Consolidated Statements of Operations.

In July 2018, the Company sold 39.13% of its ownership position in MediaMath back to MediaMath for $45.0 million. The Company also granted MediaMath an option to repurchase an additional 10.87% of the Company’s ownership position in MediaMath for $12.5 million within 180 days after the close of the initial transaction. The option has since been extended until September 30, 2019. The Company recognized a gain of $45.0 million on the initial transaction, which was included in Equity income (loss) in the Consolidated Statements of Operations. The Company previously accounted for its ownership interest in MediaMath under the equity method of accounting. Immediately after the initial transaction, the Company discontinued utilizing the equity method of accounting for its remaining ownership interest in MediaMath. The Company's remaining ownership interest was recorded at its carrying value immediately prior to the July 2018 transaction. The carrying value will be adjusted for any observable price changes in the same or similar equity securities of MediaMath as those held by the Company.
In July 2018, the Company sold its interest in AdvantEdge Healthcare Solutions, Inc. in a secondary transaction for $10.0 million, excluding an additional $6.3 million that may be realized upon the achievement of certain valuation thresholds in connection with the future sale of Advantage Healthcare Solutions. The Company recognized a gain of $5.5 million on the transaction, which was included in Equity income (loss) in the Consolidated Statements of Operations.
During 2017, the Company recognized impairments of $16.0 million, including $7.0 million related to Full Measure, Inc., $3.6 million related to Spongecell, Inc., $5.2 million related to Pneuron, Inc and $0.2 million related to Aventura, which is reflected in Equity income (loss) in the Consolidated Statements of Operations. The impairments were based on the Company’s decision not to continue to provide additional capital in the absence of significant additional capital raised from new investors, merger consideration received that was lower than our carrying value and ceasing operations of the underlying company.
Summarized Financial Information for Partner Companies
The Company discloses aggregate summarized statements of operations for any partner companies accounted for under the equity method that are deemed significant. The following table provides summarized financial information for partner companies accounted for under the equity method for the periods presented and has been compiled from respective partner company financial statements, reflect certain historical adjustments, and are reported on a one quarter lag. Results of operations of the partner companies are excluded for periods prior to their acquisition and subsequent to their disposition. Historical results are not adjusted when the Company exits or writes-off a partner company. 
 
As of December 31,
 
2018
 
2017
 
(In thousands)
Balance Sheets:
 
 
 
Current assets
$
168,659

 
$
381,810

Non-current assets
24,432

 
134,707

Total assets
$
193,091

 
$
516,517

Current liabilities
$
88,988

 
$
408,438

Non-current liabilities
109,924

 
120,672

Shareholders’ equity
(5,821
)
 
(12,593
)
Total liabilities and shareholders’ equity
$
193,091

 
$
516,517

Number of partner companies
19

 
25



 
Year Ended December 31,
 
2018
 
2017
 
 
(In thousands)
Results of Operations:
 
 
 
 
Revenue
$
283,009

 
$
378,080

 
Gross profit
$
181,571

 
$
251,298

 
Net loss
$
(154,696
)
 
$
(187,121
)
 



As of December 31, 2018, the Company’s carrying value in equity method partner companies, in the aggregate, exceeded the Company’s share of the net assets of such companies by approximately $43.0 million. Of this excess, $33.0 million was allocated to goodwill and $10.0 million was allocated to intangible assets.
v3.10.0.1
Acquisitions of Ownership Interests in Partner Companies and Funds
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Acquisitions of Ownership Interests in Partner Companies
Acquisitions of Ownership Interests in Partner Companies
2018 Transactions
The Company funded an aggregate of $0.7 million of term notes and $1.6 million of convertible bridge loans to InfoBionic, Inc. The Company had previously deployed an aggregate of $19.7 million in InfoBionic. InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. The Company accounts for its interest in InfoBionic under the equity method.
The Company deployed an additional $1.0 million in meQuilibrium. The Company had previously deployed an aggregate of $10.5 million in meQuilibrium. meQuilibrium is a digital coaching platform that delivers clinically validated and highly personalized resilience solutions to employers, health plans, wellness providers and consumers increasing engagement, productivity and performance, as well as improving outcomes in managing stress, health and well-being. The Company accounts for its interest in meQuilibrium under the equity method.
The Company funded an additional $1.0 million of convertible bridge loans to Moxe Health Corporation. The Company had previously deployed $4.5 million in Moxe Health. Moxe Health connects payers to their provider networks, facilitating real-time data exchange through its electronic integration platform. The Company accounts for its interest in Moxe Health under the equity method.
The Company funded an additional $1.5 million in Zipnosis, Inc. The Company had previously deployed $7.0 million in Zipnosis. Zipnosis provides health systems with a white-labeled, fully integrated virtual care platform. The Company accounts for its interest in Zipnosis under the equity method.
The Company deployed an aggregate of $1.0 million of convertible bridge loans to CloudMine, Inc. The Company had previously deployed an aggregate of $10.0 million in CloudMine. See Note 2 for discussion of the impairment of our interests in 2018. The Company had previously accounted for its interest in CloudMine under the equity method.
The Company funded an additional $0.5 million in Aktana, Inc. The Company had previously deployed $9.7 million in Aktana. Aktana leverages big data and machine learning to enable pharmaceutical brands to dynamically optimize their strategy and enhance sales execution. The Company accounts for its interest in Aktana under the equity method.
The Company funded an additional $1.4 million of convertible bridge loans to QuanticMind. The Company had previously deployed $11.5 million in QuanticMind. QuanticMind delivers the most intelligent, scalable and fastest platform for maximizing digital marketing performance, including paid search and social, for enterprises. The Company accounts for its interest in QuanticMind under the equity method.
The Company deployed an aggregate of $2.2 million of convertible bridge loans to Sonobi, Inc. The Company had previously deployed $9.2 million in Sonobi. Sonobi is an advertising technology developer that designs advertising tools and solutions for the industry's leading media, publishers, brand advertisers, media agencies, DSPs, and media technology providers. The Company accounts for its interest in Sonobi under the equity method.
The Company funded an aggregate of $1.0 million of convertible bridge loans to WebLinc, Inc. The Company had previously deployed an aggregate of $14.0 million in WebLinc. WebLinc is an e-commerce platform and services provider for fast growing online retailers. The Company accounts for its interest in WebLinc under the equity method.
The Company deployed an additional $0.3 million in Propeller. The Company had previously deployed an aggregate of $14.0 million in Propeller. Propeller provides digital solutions to measurably improve respiratory health. The Company accounts for its interest in Propeller under the equity method. See Note 16 discussion of the sale of this partner company in 2019.
The Company funded an aggregate of $0.4 million of convertible bridge loans to Cask Data, Inc. The Company had previously deployed an aggregate of $13.0 million in Cask Data. Cask Data made building and running big data solutions on-premises or in the cloud easy with Cask Data Application Platform. In May 2018, Cask Data sold substantially all of its assets to another entity resulting in the gain discussed in Note 2. The Company had previously accounted for its interest in Cask Data under the equity method.
The Company funded an aggregate of $2.2 million of convertible loans to NovaSom, Inc. The Company had previously deployed an aggregate of $24.1 million in NovaSom. NovaSom is a medical device company focused on obstructive sleep apnea, specifically home testing with its FDA-cleared wireless device called AccuSom® home sleep test. The Company accounts for its interest in NovaSom under the equity method.
The Company funded an aggregate of $0.5 million of convertible bridge loans to Spongecell, Inc. The Company had previously deployed an aggregate of $18.6 million in Spongecell. In the first quarter of 2018, Spongecell merged into Flashtalking as discussed in Note 2. The Company previously accounted for its interest in Spongecell under the equity method.
The Company funded an aggregate of $0.7 million of convertible bridge loans to Brickwork. The Company had previously deployed an aggregate of $4.2 million in Brickwork. The Company accounts for its interest in Brickwork under the equity method. See Note 16 for discussion of the sale of this partner company in 2019.
2017 Transactions
The Company deployed $1.0 million into Prognos. The Company had previously deployed an aggregate of $11.6 million in Prognos. Prognos is a healthcare AI company that’s striving to improve health by tracking and predicting disease earlier in partnership with Life Sciences brands, payers, and clinical diagnostics organizations. The Company accounts for its interest in Prognos under the equity method.
The Company deployed $2.3 million into Syapse, Inc. The Company had previously deployed an aggregate of $13.3 million in Syapse. Syapse is on a mission to deliver the best care for every cancer patient through precision medicine. Syapse’s software platform, data sharing network, and industry partnerships enable healthcare providers to bring precision cancer care to every patient who needs it. The Company accounts for its interest in Syapse under the equity method.
The Company funded an aggregate of $0.6 million of convertible bridge loans to Spongecell, Inc. The Company had previously deployed an aggregate of $18.0 million in Spongecell. During 2018, Spongecell merged into Flashtalking. The Company accounted for its interest in Spongecell under the equity method.
The Company funded an aggregate of $5.3 million of convertible bridge loans to InfoBionic, Inc. The Company had previously deployed an aggregate of $14.5 million in InfoBionic. InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. The Company accounts for its interest in InfoBionic under the equity method.
The Company funded an aggregate of $3.8 million of convertible bridge loans to Sonobi, Inc. The Company had previously deployed $5.4 million in Sonobi. Sonobi is an advertising technology developer that creates data-driven tools and solutions to meet the evolving needs of demand- and sell-side organizations within the digital media marketplace. The Company accounts for its interest in Sonobi under the equity method.
The Company funded an aggregate of $2.0 million of convertible bridge loans to NovaSom, Inc. The Company had previously deployed an aggregate of $22.1 million in NovaSom. NovaSom is a medical device company focused on obstructive sleep apnea, specifically home testing with its FDA-cleared wireless device called AccuSom® home sleep test. The Company accounts for its interest in NovaSom under the equity method.
The Company funded an aggregate of $2.0 million of convertible bridge loans to Cask Data, Inc. The Company had previously deployed an aggregate of $11.0 million in Cask Data. Cask Data was acquired by another entity in 2018.
The Company deployed an aggregate of $4.5 million into CloudMine, Inc. The Company had previously deployed an aggregate of $5.5 million in CloudMine. The Company fully impaired its investment in this partner company in 2018.
The Company deployed an aggregate of $3.1 million into Full Measure Education, Inc. The Company had previously deployed an aggregate of $8.6 million in Full Measure.
The Company deployed $2.5 million into meQuilibrium. The Company had previously deployed an aggregate of $8.0 million in meQuilibrium. meQuilibrium is a digital coaching platform that delivers clinically validated and highly personalized resilience solutions to employers, health plans, wellness providers and consumers increasing engagement, productivity and performance, as well as improving outcomes in managing stress, health and well-being. The Company accounts for its interest in meQuilibrium under the equity method.
The Company funded $0.3 million of convertible bridge loans to Hoopla Software, Inc. The Company had previously deployed an aggregate of $4.8 million in Hoopla Software. Hoopla Software provides cloud-based software that helps sales organizations inspire and motivate sales team performance. The Company accounts for its interest in Hoopla Software under the equity method.
The Company deployed $1.8 million into QuanticMind, Inc. The Company had previously deployed an aggregate of $9.7 million in QuanticMind. QuanticMind delivers the most intelligent, scalable and fastest platform for maximizing digital marketing performance, including paid search and social, for enterprises. The Company accounts for its interest in QuanticMind under the equity method.
The Company funded an aggregate of $2.0 million of convertible bridge loans to WebLinc, Inc. The Company had previously deployed an aggregate of $12.0 million in WebLinc. WebLinc is a commerce platform and services provider for fast growing online retailers. The Company accounts for its interest in WebLinc under the equity method.
The Company funded $1.8 million of a convertible bridge loan to Good Start Genetics, Inc. The Company had previously deployed an aggregate of $17.2 million in Good Start Genetics. Good Start Genetics was acquired by Invitae Corporation in August 2017.
The Company deployed $2.1 million into Trice Medical, Inc. The Company had previously deployed an aggregate of $8.0 million in Trice Medical. Trice Medical is a diagnostics company focused on micro invasive technologies. The Company accounts for its interest in Trice Medical under the equity method.
The Company deployed $1.5 million into Aktana, Inc. The Company had previously deployed an aggregate of $8.2 million in Aktana. Aktana leverages big data and machine learning to enable pharmaceutical brands to dynamically optimize their strategy and enhance sales execution. The Company accounts for its interest in Aktana under the equity method.
The Company funded $0.2 million of a bridge loan to Lumesis, Inc. The Company had previously deployed an aggregate of $6.2 million in Lumesis. Lumesis is a financial technology company focused on providing business efficiency, regulatory and data solutions to the municipal bond marketplace. The Company accounts for its interest in Lumesis under the equity method.
The Company funded $0.3 million of a convertible bridge loan to Aventura, Inc. to fund wind-down activities. The Company had previously deployed an aggregate of $6.2 million in Aventura. The adjusted carrying value of the Company's interest in Aventura was $0.0 million at December 31, 2017. The Company accounted for its interest in Aventura under the equity method.
v3.10.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on the Company’s Consolidated Balance Sheets are categorized as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table provides the carrying value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 2018 and 2017:
 
Carrying
Value
 
Fair Value Measurement at December 31, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Cash and cash equivalents
$
7,703

 
$
7,703

 
$

 
$

Restricted cash equivalents
500

 
500

 

 

Marketable securities—held-to-maturity:
 
 
 
 
 
 
 
Government agency bond
$
21,473

 
$
21,473

 
$

 
$

U.S. Treasury Bills
$
16,482

 
$
16,482

 
$

 
$

 Total marketable securities
$
37,955

 
$
37,955

 
$

 
$

 
 
 
 
 
 
 
 
Credit facility repayment feature liability
$
5,060

 
$

 
$

 
$
5,060

 
 
Carrying
Value
 
Fair Value Measurement at December 31, 2017
 
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Cash and cash equivalents
$
20,751

 
$
20,751

 
$

 
$

Long-term restricted cash equivalents
6,336

 
6,336

 

 

Trading securities
3,761

 
3,761

 

 

Marketable securities—held-to-maturity:

 

 
 
 
 
Certificates of deposit
$
4,452

 
$
4,452

 
$

 
$


As of December 31, 2018, $38.0 million of marketable securities had contractual maturities which were less than one year. Held-to-maturity securities are carried at amortized cost, which, due to the short-term maturity of these instruments, approximates fair value using quoted prices in active markets for identical assets or liabilities defined as Level 1 inputs under the fair value hierarchy. As of December 31, 2017, trading securities consist of shares of Invitae Corporation obtained in connection with Invitae's acquisition of Good Start Genetics, Inc. in August 2017. The trading securities were recorded at fair value based on Invitae's closing stock price at December 31, 2017. During 2018, the Company sold the shares of Invitae common stock for net proceeds of $3.7 million. The Company recorded $5.1 million for the fair value of the credit facility repayment feature liability as of December 31, 2018, an increase of $4.5 million from its initial value established during the second quarter of 2018. The prepayment feature is an embedded derivative that is accounted for as a liability separate from the Amended Credit Facility. The liability is adjusted to the fair value of required projected future debt prepayments. The liability may change materially based upon management's probability weighted cash forecast at each balance sheet date. Management's cash forecasts are defined as Level 3 inputs under the fair value hierarchy.
v3.10.0.1
Convertible Debentures and Credit Arrangements
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Convertible Debentures and Credit Arrangements
Convertible Debentures
Credit Facility
In May 2017, the Company entered into a $75.0 million secured, revolving credit facility (“Credit Facility”) with HPS Investment Partners, LLC (“Lender”). At closing, the Company borrowed $50.0 million, which resulted in net proceeds of $44.3 million after closing fees to the Lender and other third parties. The Credit Facility has a three-year term with a scheduled maturity of May 11, 2020 and bears interest at a rate of either: (A) LIBOR plus 8.5% (subject to a LIBOR floor of 1%), payable on the last day of the one, two or three month interest period applicable to the LIBOR rate advance, or (B) 7.5% plus the greater of: 2%; the Federal Funds Rate plus 0.5%; LIBOR plus 1%; or the U.S. Prime Rate, payable monthly in arrears. The Credit Facility is not amortized and interest payable under the Credit Facility will reflect at least $50 million as being drawn and outstanding at all times during the term. The Credit Facility also included an unused line fee equal to 0.75% per annum of the average unused portion of the Credit Facility and a loan service fee, both paid quarterly. The Credit Facility is secured by all of the Company's assets in accordance with the terms of the Credit Facility.
In May 2018, the Company and Lender amended the Credit Facility ("Amended Credit Facility") to increase the principal amount of indebtedness available to be borrowed by the Company from $75.0 million to $100.0 million. The maturity date and interest rate remained unchanged. The Amended Credit Facility consists of a term loan in the principal amount of $85.0 million, (the "Term Loan"), $50.0 million of which was outstanding prior to entering into the amendment and $35.0 million of which was drawn in connection with the consummation of the amendment, and a revolving loan in the principal amount of up to $15.0 million (the “Revolving Loan”). The Company was able to borrow and repay under the Revolving Loan at any time until its expiration on December 30, 2018. Any amounts outstanding under the Revolving Loan on December 30, 2018 would be subject to the same repayment terms as amounts borrowed under the Term Loan. Repayment terms under the Credit Facility include a make-whole interest provision equal to the interest that would have been payable had the principal amount subject to repayment been outstanding through the maturity date of the Credit Facility. Under the Amended Credit Facility, if the aggregate amount of the Company’s qualified cash at any quarter end date exceeds $50.0 million, the Company will be required to prepay outstanding principal amounts under the Amended Credit Facility, plus any applicable interest and prepayment fees, in an amount equal to 100% of such excess. Based on this requirement, the Company has classified $22.1 million as the current portion of the credit facility based on the Company's projected qualified cash at March 31, 2019.
Certain debt covenants were revised in connection with the Amended Credit Facility. The Amended Credit Facility requires the Company to (i) maintain a liquidity threshold of at least $20 million of unrestricted cash; (ii) maintain a minimum aggregate appraised value of the Company’s ownership interests in its partner companies, plus unrestricted cash in excess of the liquidity threshold, of at least $350 million less the aggregate amount of all prepayments of the Term Loan and all prepayments of the Revolving Loan made after December 30, 2018; and (iii) limit deployments to only existing partner companies and such deployments may not exceed, when combined with deployments after January 1, 2018, $40 million in the aggregate through the maturity date; and (iv) limit certain expenses (which shall exclude severance payments, interest expense, depreciation and stock-based compensation) incurred or paid to no more than $11.5 million in any twelve-month period after the date of the amendment (or such shorter period as has elapsed since the date of the amendment). The Company is no longer required to maintain a specific net worth or any diversification requirements or concentration limits with respect to the Company’s capital deployments to its partner companies. Additionally, under the Amended Credit Facility, the Company is restricted from repurchasing shares of its outstanding common stock and/or issuing dividends until such time as the Amended Credit Facility is repaid in full. As of the date these consolidated financial statements were issued, the Company was in compliance with all applicable covenants.
The $35.0 million of additional principal that the Company borrowed with the consummation of the Amended Credit Facility resulted in net proceeds of $32.7 million, after closing fees to the Lender and other third parties, that were used towards the repayment of $41.0 million of principal outstanding on its 2018 Debentures, which the Company repaid in full on the maturity date of May 15, 2018. There were no convertible debentures outstanding as of December 31, 2018.
The Amended Credit Facility provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; non-compliance with debt covenants; defaults in, or failure to pay, certain other indebtedness; the rendering of judgments to pay certain amounts of money; certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is not cured within the time periods specified (if any), the Lender may declare the outstanding amount under the Amended Credit Facility to be immediately due and payable.
At December 31, 2018, the principal amount outstanding under the Amended Credit Facility was $68.6 million, the unamortized discount and debt issuance costs were $3.5 million and the net carrying value of the Credit Facility was $65.1 million. The Company accounted for the amendment to the Credit Facility as an insubstantial modification and is amortizing the excess of the principal amount of the Amended Credit Facility over its carrying value over the remaining term as additional interest expense using a revised effective interest rate prospectively based on the revised cash flows. The Amended Credit Facility requires prepayments of outstanding principal amounts when the Company’s qualified cash at any quarter end date exceeds $50.0 million. This provision in the Amended Credit Facility is an embedded derivative that is accounted for separately. An initial fair value (liability) of $0.5 million was recorded on the amendment date for the fair value of potential future prepayments based upon management's probability weighted cash forecast. This amount is also included in debt issuance costs and will be amortized over the remaining term of the Amended Credit Facility. The liability is being adjusted to fair value at each balance sheet date based upon management's updated probability weighted cash forecast. The Company recorded losses of $4.5 million for the year ended December 31, 2018 which is included in Other loss on the Consolidated Statements of Operations. The increase in the fair value of the credit facility repayment feature liability is due to an increase in the probability of debt prepayments based on the Company's current cash position and expected uses of cash during 2019. The Company recorded interest expense of $14.6 million and $4.4 million for the years ended December 31, 2018 and 2017, respectively, under the Amended Credit Facility. The effective interest rate on the Amended Credit Facility is 15.2%. The Company made interest payments of $10.0 million and $2.5 million for the years ended December 31, 2018 and 2017, respectively.
Convertible Senior Debentures
In November 2012, the Company issued $55.0 million principal amount of its 5.25% convertible senior debentures which was due on May 15, 2018 (the “2018 Debentures”). In 2017, the Company repurchased on the open market, and retired, an aggregate of $14.0 million face value of the 2018 Debentures at a cost of $14.5 million, including transaction fees. In connection with the repurchase of these 2018 Debentures, the Company recognized a $0.8 million reduction in equity which is included in Accumulated Paid-In Capital in the Consolidated Balance Sheet as of December 31, 2017 and a $29 thousand loss on extinguishment of the liability which is included in Other loss in the Consolidated Statements of Operations for the year ended December 31, 2017. At December 31, 2017, the Company had $41.0 million of outstanding 2018 Debentures which was repaid in full in May 2018.
Interest on the 2018 Debentures was payable semi-annually on May 15 and November 15. Holders of the 2018 Debentures had the right to convert their notes prior to November 15, 2017 at their option only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on December 31, 2012, if the last reported sale price of the common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day;

if the notes have been called for redemption; or

upon the occurrence of specified corporate events.
 
On or after November 15, 2017 until the close of business on the second business day immediately preceding the maturity date, holders would convert their notes at any time, regardless of whether any of the foregoing conditions had been met. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at the Company’s election.
The conversion rate of the 2018 Debentures was 55.17 shares of common stock per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $18.13 per share of common stock. The closing price of the Company’s common stock at December 31, 2017 was $11.20. Since their issuance in 2012, none of the 2018 Debentures have been converted to shares of common stock.
On or after November 15, 2016, the Company could redeem for cash any of the 2018 Debentures if the last reported sale price of the Company’s common stock exceeds 140% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on the trading day before the date that notice of redemption is given, including the last trading day of such period. Upon any redemption of the 2018 Debentures, the Company will pay a redemption price of 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption, and additional interest, if any.
The 2018 Debentures holders had the right to require the Company to repurchase the 2018 Debentures if the Company undergoes a fundamental change, which includes the sale of all or substantially all of the Company’s common stock or assets; liquidation; dissolution; a greater than 50% change in control; the delisting of the Company’s common stock from the New York Stock Exchange or the NASDAQ Global Market (or any of their respective successors); or a substantial change in the composition of the Company’s board of directors as defined in the governing agreement. Holders could have required that the Company repurchase for cash all or part of their debentures at a fundamental change repurchase price equal to 100% of the principal amount of the debentures to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Because the 2018 Debentures could be settled in cash or partially in cash upon conversion, the Company separately accounted for the liability and equity components. The carrying amount of the liability component was determined at the transaction date by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component represented by the embedded conversion option was determined by deducting the fair value of the liability component from the initial proceeds of the 2018 Debentures as a whole. At December 31, 2017, the fair value of the $41.0 million outstanding 2018 Debentures was approximately $41.6 million, based on the midpoint of the bid and ask prices as of such date. At December 31, 2017, the carrying amount of the equity component was $5.6 million, the principal amount of the liability component was $41.0 million, the unamortized discount and debt issuance costs were $0.5 million, and the net carrying value of the liability component was $40.5 million. The Company amortized the excess of the face value of the 2018 Debentures over their carrying value over their term as additional interest expense using the effective interest method and recorded $0.5 million and $1.5 million of such expense for the years ended December 31, 2018 and 2017, respectively. The effective interest rate on the 2018 Debentures was 8.7%.
v3.10.0.1
Equity
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Equity
Equity
In July 2015, the Company's Board of Directors authorized the Company, from time to time and depending on market conditions, to repurchase up to $25.0 million of the Company's outstanding common stock. During the years ended December 31, 2018 and 2017, the Company did not repurchase any shares under the existing authorization. 
In February 2018, the Company's Board of Directors adopted a tax benefits preservation plan (the "Plan") designed to protect and preserve the Company's ability to utilize its net operating loss carryforwards ("NOLs") which was ratified by shareholders at its 2018 Annual Meeting of Shareholders. The purpose of the Plan is to preserve the Company's ability to use its NOLs, which would be substantially limited if the Company experienced an "ownership change" as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if the Company's shareholders who are treated as owning five percent or more of the outstanding shares of Safeguard for purposes of Section 382 ("five-percent shareholders") collectively increase their aggregate ownership in the Company's overall shares outstanding by more than 50 percentage points. Whether this change has occurred would be measured by comparing each five-percent shareholder's current ownership as of the measurement date to such shareholders' lowest ownership percentage during the three-year period preceding the measurement date. To protect the Company's NOLs from being limited or permanently lost under Section 382, the Plan is intended to deter any person or group from acquiring beneficial ownership of 4.99% or more of the Company's outstanding common stock without the approval of the Board, reducing the likelihood of an unintended ownership change. Under the Plan, the Company will issue one preferred stock purchase right (the "Rights") for each share of Safeguard's common stock held by shareholders of record on March 2, 2018. The issuance of the Rights will not be taxable to Safeguard or its shareholders and will not affect Safeguard's reported earnings per share. The Rights will trade with Safeguard's common shares and will expire no later than February 19, 2021. The Rights and the Plan may also expire on an earlier date upon the occurrence of other events, including a determination by the Company's Board that the Plan is no longer necessary or desirable for the preservation of the Company's tax attributes or that no tax attributes may be carried forward (with such expiration occurring as of the beginning of the applicable taxable year). There can be no assurance that the Plan will prevent the Company from experiencing an ownership change.
v3.10.0.1
Stock-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Equity Compensation Plans
The 2014 Equity Compensation Plan has 4.1 million shares authorized for issuance. During 2018 and 2017, the Company issued zero stock-based awards outside of existing plans. To the extent allowable, service-based options are incentive stock options. Options granted under the plans are at prices equal to or greater than the fair market value at the date of grant. Upon exercise of stock options, the Company issues shares first from treasury stock, if available, then from authorized but unissued shares. At December 31, 2018, the Company had reserved 3.2 million shares of common stock for possible future issuance under its 2014 Equity Compensation Plan and other previously expired equity compensation plans.
Classification of Stock-Based Compensation Expense
Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows: 
 
Year Ended December 31,
 
2018
 
2017
 
 
(In thousands)
General and administrative expense
$
966

 
$
1,138

 
 
$
966

 
$
1,138

 

At December 31, 2018, the Company had outstanding options that vest based on two different types of vesting schedules:
1) performance-based; and
2) service-based.
Performance-based awards entitle participants to vest in a number of awards determined by achievement by the Company of target capital returns based on net cash proceeds received by the Company upon the sale, merger or other exit transaction of certain identified partner companies. Vesting may occur, if at all, once per year. The requisite service periods for the performance-based awards are based on the Company’s estimate of when the performance conditions will be met. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if capital return targets are achieved earlier than estimated. No performance-based options were issued during the years ended December 31, 2018 or 2017. During the years ended December 31, 2018 and 2017, 1 thousand and 1 thousand performance-based options vested each year. During the years ended December 31, 2018 and 2017, respectively, 76 thousand and 8 thousand performance-based options were canceled or forfeited. The Company recorded a reduction of compensation expense related to performance-based options of $0.7 million and $0.2 million for the years ended December 31, 2018 and 2017 respectively. The maximum number of unvested options at December 31, 2018 attainable under these grants was 258 thousand shares.
Service-based awards generally vest over four years after the date of grant and expire eight years after the date of grant. Compensation expense is recognized over the requisite service period using the straight-line method. The requisite service period for service-based awards is the period over which the award vests. During the years ended December 31, 2018 and 2017, respectively, the Company issued zero thousand and 8 thousand service-based options to employees. During the years ended December 31, 2018 and 2017, respectively, 17 thousand and 80 thousand service-based options were canceled or forfeited. The Company recorded compensation expense related to these options of $0.0 million and $0.1 million during the year ended December 31, 2018 and 2017, respectively.
The fair value of the Company’s option awards to employees was estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate is based on the U.S. Treasury yield curve in effect at the end of the quarter in which the grant occurred. The expected term of stock options granted was estimated using the historical exercise behavior of employees. Expected volatility was based on historical volatility measured using weekly price observations of the Company’s common stock for a period equal to the stock option’s expected term. There were no options granted during 2018. Assumptions used in the valuation of options granted in 2017 were as follows: 
 
Year Ended December 31,
 
 
2017
 
Service-Based Options
 
 
 
Dividend yield
 
0
%
 
Expected volatility
 
22
%
 
Average expected option life
 
5 years

 
Risk-free interest rate
 
2.1
%
 

The weighted-average grant date fair value of options issued by the Company during the year ended December 31, 2017 was $2.36 per share.

Option activity of the Company is summarized below: 
 
Shares
 
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Life
 
Aggregate
Intrinsic
Value
 
(In thousands)
 
 
 
(In years)
 
(In thousands)
Outstanding at December 31, 2016
678

 
14.90

 
 
 
 
Options granted
8

 
11.33

 
 
 
 
Options exercised
(29
)
 
10.16

 
 
 
 
Options canceled/forfeited
(88
)
 
17.20

 
 
 
 
Outstanding at December 31, 2017
569

 
14.74

 
 
 
 
Options granted

 

 
 
 
 
Options exercised
(15
)
 
12.29

 
 
 
 
Options canceled/forfeited
(144
)
 
15.21

 
 
 
 
Outstanding at December 31, 2018
410

 
14.66

 
2.39
 
$

Options exercisable at December 31, 2018
143

 
16.18

 
1.63
 

Shares available for future grant
2,063

 
 
 
 
 
 

The total intrinsic value of options exercised for the years ended December 31, 2018 was immaterial. The total intrinsic value of options exercised for the years ended December 31, 2017 was $0.1 million.

At December 31, 2018, total unrecognized compensation cost related to non-vested service-based options was immaterial. At December 31, 2018, total unrecognized compensation cost related to non-vested performance-based options was immaterial.
Performance-based stock units vest based on achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies, as described above related to performance-based awards. Performance-based stock units represent the right to receive shares of the Company’s common stock, on a one-for-one basis. The Company did not issue any performance-based units during the years ended December 31, 2018 or 2017. During the years ended December 31, 2018 and 2017, 1 thousand performance-based stock units vested each year. During the years ended December 31, 2018 and 2017, respectively, 117 thousand and 6 thousand performance-based stock units were canceled or forfeited. Under the terms of the 2016 and 2015 performance-based awards, once performance-based stock units are fully vested, participants are entitled to receive cash payments based on their initial performance grant values as target capital returns described above are exceeded. At December 31, 2018, the liability associated with such potential cash payments was $0.0 million.
During the years ended December 31, 2018 and 2017, respectively, the Company issued 48 thousand and 163 thousand restricted shares to employees and directors. Restricted shares generally vest over a period of approximately two to four years, or are vested at issuance for directors 65 or older. During the years ended December 31, 2018 and 2017, respectively, 44 thousand and 3 thousand restricted shares were canceled or forfeited.
During the years ended December 31, 2018 and 2017, respectively, the Company issued 6 thousand, and 54 thousand restricted stock or deferred stock units to non-employee directors for annual service grants or fees earned during the preceding quarter. Deferred stock units issued to directors in lieu of directors fees are 100% vested at the grant date; matching deferred stock units equal to 25% of directors’ fees deferred vest one year following the grant date or, if earlier, upon reaching age 65. Deferred stock units are payable in stock on a one-for-one basis. Payments related to the deferred stock units are generally distributable following termination of service, death or permanent disability.
 
During the year ended December 31, 2017, the Company granted 22 thousand shares to members of its advisory board. The advisory board was disbanded in February 2018. The Company recorded compensation expense of $0.3 million in 2017 related to these awards.

Total compensation expense for deferred stock units, performance-based stock units and restricted stock was $1.0 million $1.3 million, for the years ended December 31, 2018 and 2017, respectively. Unrecognized compensation expense related to deferred stock units, performance stock units and restricted stock at December 31, 2018 was $2.4 million. The total fair value of deferred stock units, performance stock units and restricted stock vested during the years ended December 31, 2018 and 2017 was $1.6 million and $1.6 million, respectively.
Deferred stock unit, performance-based stock unit and restricted stock activity are summarized below: 
 
Shares
 
Weighted Average
Grant Date Fair
Value
 
(In thousands)
 
 
Unvested at December 31, 2016
933

 
$
14.79

Granted
217

 
11.43

Vested
(135
)
 
13.75

Forfeited
(10
)
 
14.38

Unvested at December 31, 2017
1,005

 
14.21

Granted
54

 
9.47

Vested
(121
)
 
12.87

Forfeited
(161
)
 
14.21

Unvested at December 31, 2018
777

 
14.08

v3.10.0.1
Employee Benefit Plan
12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Employee Benefit Plan
Employee Benefit Plan

The Company maintains a qualified 401(K) retirement plan for eligible employees. The Plan’s matching formula is 100% of the first 5% of participants’ qualified compensation. Compensation expense related to our matching contributions to the plan for the years ended December 31, 2018 and 2017, were $0.2 million and $0.4 million, respectively.
v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The federal and state provision (benefit) for income taxes was $0.0 million for the years ended December 31, 2018 and 2017.
The total income tax provision (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 21% and 35.0% for the years ended December 31, 2018 and 2017, respectively, to net loss before income taxes as a result of the following:
 
Year Ended December 31,
 
2018
 
2017
 
Statutory tax (benefit) expense
(21.0
)%
 
(35.0
)%
 
Increase (decrease) in taxes resulting from:
 
 
 
 
Stock-based compensation

 

 
Nondeductible expenses
1.5

 
0.2

 
Tax Cuts and Jobs Act impact

 
93.2

 
Valuation allowance
19.5

 
(58.4
)
 
 
0.0
 %
 
0.0
 %
 

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows: 
 
As of December 31,
 
2018
 
2017
 
(In thousands)
Deferred tax asset:
 
 
 
Carrying values of partner companies and other holdings
$
60,951

 
$
69,751

Tax loss and credit carryforwards
62,901

 
58,138

Disallowed interest carryforwards
3,831

 

Credit facility repayment feature
1,312

 

Accrued expenses
675

 
766

Stock-based compensation
550

 
814

Other
1,034

 
967

 
131,254

 
130,436

Valuation allowance
(131,254
)
 
(130,436
)
Net deferred tax asset
$

 
$


As of December 31, 2018, the Company and its subsidiaries consolidated for tax purposes had federal net operating and capital loss carryforwards of approximately $299.5 million, of which $17.1 million have an indefinite life. These carryforwards expire as follows: 
 
Total
 
(In thousands)
2019
$

2020

2021
3,728

2022
48,848

2023 and thereafter
229,867

 
$
282,443


In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (iii) creating a new limitation on deductible interest expense; and (iv) changing rules related to uses and limitations of net operating carryforwards created in tax years beginning after December 31, 2017. The most significant impact on the Company's consolidated financial statements was a reduction of approximately $82.5 million in deferred tax assets which is offset by changes to the Company’s valuation allowance. 
In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that it is more likely than not that certain future tax benefits may not be realized as a result of current and future income. Accordingly, a valuation allowance has been recorded against substantially all of the Company’s deferred tax assets.

The Company recognizes in its Consolidated Financial Statements the impact of a tax position if that position is more likely than not to be sustained upon examination, based on the technical merits of the position. All uncertain tax positions relate to unrecognized tax benefits that would impact the effective tax rate when recognized.

The Company does not expect any material increase or decrease in its income tax expense, in the next twelve months, related to examinations or changes in uncertain tax positions.
 
There were no changes in the Company’s uncertain tax positions for the years ended December 31, 2018 and 2017.
The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Tax years 2015 and forward remain open for examination for federal tax purposes and the Company’s more significant state tax jurisdictions. To the extent utilized in future years’ tax returns, net operating loss carryforwards at December 31, 2018 will remain subject to examination until the respective tax year is closed. The Company recognizes penalties and interest accrued related to income tax liabilities in income tax benefit (expense) in the Consolidated Statements of Operations.
v3.10.0.1
Net Income (Loss) Per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Net Loss Per Share
Net Loss Per Share
The calculations of net loss per share were: 
 
Year Ended December 31,
 
2018
 
2017
 
 
(In thousands, except per share data)
Basic:
 
 
 
 
Net loss
$
(15,629
)
 
$
(88,572
)
 
Weighted average common shares outstanding
20,544

 
20,430

 
Net loss per share
$
(0.76
)
 
$
(4.34
)
 
Diluted:
 
 
 
 
Net loss
$
(15,629
)
 
$
(88,572
)
 
Weighted average common shares outstanding
20,544

 
20,430

 
Net loss per share
$
(0.76
)
 
$
(4.34
)
 

Basic and diluted average common shares outstanding for purposes of computing net income (loss) per share includes outstanding common shares and vested deferred stock units (DSUs).
If a consolidated or equity method partner company has dilutive stock options, unvested restricted stock, DSUs, or warrants, diluted net income (loss) per share is computed by first deducting from net income (loss) the income attributable to the potential exercise of the dilutive securities of the partner company from net income (loss). Any impact is shown as an adjustment to net income (loss) for purposes of calculating diluted net income (loss) per share.
Diluted loss per share for the years ended December 31, 2018 and 2017 do not reflect the following potential shares of common stock that would have an anti-dilutive effect or have unsatisfied performance or market conditions:

At December 31, 2018 and 2017, options to purchase 0.4 million, and 0.6 million shares of common stock, respectively, at prices ranging from $9.83 to $19.95 per share, and $9.83 to $19.95 per share per share, respectively, were excluded from the calculation.

At December 31, 2018 and 2017, unvested restricted stock, performance-based stock units and DSUs convertible into 0.8 million million and 1.0 million shares of stock, respectively, were excluded from the calculations.

For the years ended December 31, 2018 and 2017, 0.8 million and 2.3 million shares of common stock, respectively, representing the effect of assumed conversion of the 2018 Debentures were excluded from the calculations.
v3.10.0.1
Related Party Transactions
12 Months Ended
Dec. 31, 2018
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions
In May 2001, the Company entered into a $26.5 million loan agreement with Warren V. Musser, a former Chairman and Chief Executive Officer of the Company. Through December 31, 2018, the Company recognized impairment charges against the loan of $15.7 million. Since 2001 and through December 31, 2018, the Company has received a total of $17.1 million in payments on the loan. The carrying value of the loan at December 31, 2018 was zero. The Company did not receive any payments on this loan agreement in the years ended December 31, 2018 or 2017.
In the normal course of business, the Company’s officers and employees hold board positions with partner and other companies in which the Company has a direct or indirect ownership interest.
v3.10.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
The Company and its partner companies are involved in various claims and legal actions arising in the ordinary course of business. In the current opinion of the Company, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations, however, no assurance can be given as to the outcome of these actions, and one or more adverse rulings could have a material adverse effect on the Company’s consolidated financial position and results of operations or that of its partner companies. The Company records costs associated with legal fees as such services are rendered.
The Company leases its corporate headquarters under a lease expiring in 2026 and office equipment under leases expiring at various dates to 2020. Total rental expense under operating leases was $0.6 million and $0.5 million for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018, future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more are as follows:
 
Total
 
(In thousands)
2019
$
605

2020
603

2021
598

2022
602

2023 and thereafter
2,046

 
$
4,454


The Company had outstanding guarantees of $3.8 million at December 31, 2018 which related to one of the Company's private equity holdings.
The Company is required to return a portion or all the distributions it received as a general partner of a private equity fund for further distribution to such fund's limited partners (“clawback”). The Company’s ownership in the fund is 19%. The clawback liability is joint and several, such that the Company may be required to fund the clawback for other general partners should they default. The Company was notified by the fund's manager that the fund is being dissolved and $1.0 million of the Company's clawback liability was paid in the first quarter of 2017. The maximum additional clawback liability is $0.3 million which is reflected in Other long-term liabilities on the Consolidated Balance Sheet at December 31, 2018.
 
In October 2001, the Company entered into an agreement with a former Chairman and Chief Executive Officer of the Company, to provide for annual payments of $0.65 million per year and certain health care and other benefits for life. The related current liability of $0.8 million is included in Accrued expenses and other current liabilities and the long-term portion of $1.3 million is included in Other long-term liabilities on the Consolidated Balance Sheet at December 31, 2018.
In January 2018, the Company announced a change in strategy and implemented an initiative to generate annual cost savings. The Company has incurred approximately $3.9 million of severance costs to terminated employees, of which $1.2 million remains to be paid during 2019. The Company also has agreements with certain employees that provide for severance payments to the employee in the event the employee is terminated without cause or an employee terminates his employment for “good reason.” The maximum aggregate exposure under severance agreements for remaining employees is approximately $4.8 million at December 31, 2018.
In June 2011, the Company's former partner company, Advanced BioHealing, Inc. (“ABH”) was acquired by Shire plc (“Shire”).  Prior to the expiration of the escrow period in March 2012, Shire filed a claim against all amounts held in escrow related to the sale based principally upon a United States Department of Justice (“DOJ”) false claims act investigation relating to ABH (the “Investigation”). In connection with the Investigation, in July 2015 the Company received a Civil Investigation Demand-Documentary Material (“CID”) from the DOJ regarding ABH and Safeguard’s relationship with ABH. Pursuant to the CID, the Company provided the requested materials and information.  To the Company’s knowledge, the CID was related to multiple qui tam (“whistleblower”) actions, one of which was filed in 2014 by an ex-employee of ABH that named the Company and one of the Company’s employees along with other entities and individuals as defendants.  At this time, the DOJ has declined to pursue the qui tam action as it relates to the Company and such Company employee. In addition, in connection with the above matters, the Company and other former equity holders in ABH entered into a settlement and release with Shire, which resulted in the release to Shire of all amounts held in escrow related to the sale of ABH.
v3.10.0.1
Supplemental Cash Flow Information
12 Months Ended
Dec. 31, 2018
Supplemental Cash Flow Information [Abstract]  
Supplemental Cash Flow Information
Supplemental Cash Flow Information
During the years ended December 31, 2018 and 2017, the Company converted $12.4 million and $10.8 million, respectively, of advances to partner companies into ownership interests in partner companies. Cash paid for interest for the years ended December 31, 2018 and 2017 was $11.1 million and $5.0 million, respectively. Cash paid for taxes in each of the years ended December 31, 2018 and 2017 was $0.0 million.
v3.10.0.1
Operating Segments
12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segment Reporting
Segment Reporting
The Company operates as one operating segment based upon the similar nature of its technology-driven partner companies, the functional alignment of the organizational structure, and the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.
As of December 31, 2018, the Company held interests in 21 non-consolidated partner companies. The Company’s active partner companies as of December 31, 2018 were as follows for the years ended December 31, 2018, and 2017:
 
 
 
Safeguard Primary Ownership
as of December 31,
 
 
Partner Company
 
 
2018
 
2017
 
 
Accounting Method
Aktana, Inc.
 
 
18.9%
 
24.5%
 
 
Equity
Brickwork ***
 
 
20.3%
 
20.3%
 
 
Equity
Clutch Holdings, Inc.
 
 
41.2%
 
42.7%
 
 
Equity
Flashtalking, Inc.*
 
 
10.1%
 
N/A
 
 
Other
Hoopla Software, Inc.
 
 
25.5%
 
25.5%
 
 
Equity
InfoBionic, Inc.
 
 
25.4%
 
39.5%
 
 
Equity
Lumesis, Inc.
 
 
43.7%
 
43.8%
 
 
Equity
MediaMath, Inc. **
 
 
13.4%
 
20.5%
 
 
Other
meQuilibrium
 
 
33.1%
 
36.2%
 
 
Equity
Moxe Health Corporation
 
 
32.4%
 
32.4%
 
 
Equity
NovaSom, Inc.
 
 
31.7%
 
31.7%
 
 
Equity
Prognos Health Inc.
 
 
28.7%
 
28.7%
 
 
Equity
Propeller ***
 
 
19.5%
 
24.0%
 
 
Equity
QuanticMind, Inc.
 
 
24.2%
 
24.7%
 
 
Equity
Sonobi, Inc.
 
 
21.6%
 
21.6%
 
 
Equity
Syapse, Inc.
 
 
20.0%
 
20.1%
 
 
Equity
T-REX Group, Inc.
 
 
21.1%
 
21.1%
 
 
Equity
Transactis, Inc.
 
 
23.7%
 
23.8%
 
 
Equity
Trice Medical, Inc.
 
 
17.4%
 
24.8%
 
 
Equity
WebLinc, Inc.
 
 
38.5%
 
38.0%
 
 
Equity
Zipnosis, Inc
 
 
34.7%
 
25.4%
 
 
Equity

* Spongecell, Inc. merged into Flashtalking in January 2018.
** The Company sold 39.1% of its ownership interest back to MediaMath Inc. for $45 million of proceeds in July 2018.
*** The Company's ownership interests in Brickwork and Propeller Health were disposed of, in separate transactions, in January 2019.
As of December 31, 2018 and 2017, all of the Company’s assets were located in the United States.
v3.10.0.1
Selected Quarterly Financial Information (Unaudited)
12 Months Ended
Dec. 31, 2018
Quarterly Financial Information Disclosure [Abstract]  
Selected Quarterly Financial Information (Unaudited)
Selected Quarterly Financial Information (Unaudited) 
 
Three Months Ended
 
March 31
 
June 30
 
September 30
 
December 31
 
(In thousands, except per share data)
2018:
 
 
 
 
 
 
 
General and administrative expense
$
5,589

 
$
5,148

 
$
3,516

 
$
2,618

Operating loss
(5,589
)
 
(5,148
)
 
(3,516
)
 
(2,618
)
Other income (loss), net
(1,435
)
 
(2,452
)
 
(1,078
)
 
(193
)
Interest income
798

 
666

 
718

 
624

Interest expense
(2,690
)
 
(3,422
)
 
(3,310
)
 
(6,645
)
Equity income (loss)
2,746

 
(14,540
)
 
39,246

 
(7,791
)
Net loss before income taxes
(6,170
)
 
(24,896
)
 
32,060

 
(16,623
)
Income tax benefit (expense)

 

 

 

Net loss
$
(6,170
)
 
$
(24,896
)
 
$
32,060

 
$
(16,623
)
Net loss per share (a)
 
 
 
 
 
 

Basic
$
(0.30
)
 
$
(1.21
)
 
$
1.56

 
$
(0.81
)
Diluted
$
(0.30
)
 
$
(1.21
)
 
$
1.56

 
$
(0.81
)
2017:
 
 
 
 
 
 
 
General and administrative expense
$
4,947

 
$
4,486

 
$
3,758

 
$
3,940

Operating loss
(4,947
)
 
(4,486
)
 
(3,758
)
 
(3,940
)
Other income (loss), net
249

 
(89
)
 
(379
)
 
(120
)
Interest income
801

 
1,087

 
1,004

 
984

Interest expense
(1,198
)
 
(2,112
)
 
(2,643
)
 
(2,667
)
Equity income (loss)
(17,002
)
 
(23,497
)
 
(12,874
)
 
(12,985
)
Net income (loss) before income taxes
(22,097
)
 
(29,097
)
 
(18,650
)
 
(18,728
)
Income tax benefit (expense)

 

 

 

Net income (loss)
$
(22,097
)
 
$
(29,097
)
 
$
(18,650
)
 
$
(18,728
)
Net income (loss) per share (a)
 
 
 
 
 
 

Basic
$
(1.08
)
 
$
(1.43
)
 
$
(0.91
)
 
$
(0.91
)
Diluted
$
(1.08
)
 
$
(1.43
)
 
$
(0.91
)
 
$
(0.91
)
 
(a)
Per share amounts for the quarters have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the average common shares outstanding during each period. Additionally, in regard to diluted per share amounts only, quarterly amounts may not add to the annual amounts because of the inclusion of the effect of potentially dilutive securities only in the periods in which such effect would have been dilutive, and because of the adjustments to net income (loss) for the dilutive effect of partner company common stock equivalents and convertible securities.
v3.10.0.1
Subsequent Events
12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events
In January 2019, Brickwork was acquired in an all stock transaction resulting in no gain or loss. The Company received a preferred equity interest in the acquiror and accounts for this interest as an equity interest without a readily determinable fair value.
In January 2019, Propeller was acquired for cash. The Company received approximately $41.5 million in cash.

v3.10.0.1
Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Principles of Consolidation
Principles of Consolidation
The consolidated financial statements include the accounts of Safeguard and all of its subsidiaries in which a controlling financial interest is maintained. All intercompany accounts and transactions are eliminated in consolidation.
Principles of Accounting for Ownership Interests in Companies
Principles of Accounting for Ownership Interests in Companies
The Company accounts for its interests in its partner companies using one of the following methods: Equity or Other. The accounting method applied is generally determined by the degree of the Company's influence over the entity, primarily determined by our voting interest in the entity.
In addition to holding voting and non-voting equity and debt securities, the Company also periodically makes advances to its partner companies in the form of promissory notes which are included in the Ownership interests in and advances to partner companies line item in the Consolidated Balance Sheets.
Equity Method. The Company accounts for partner companies whose results are not consolidated, but over which it exercises significant influence, under the equity method of accounting. Whether or not the Company exercises significant influence with respect to a partner company depends on an evaluation of several factors including, among others, representation of the Company on the partner company’s board of directors and the Company’s ownership level, which is generally a 20% to 50% interest in the voting securities of a partner company, including voting rights associated with the Company’s holdings in common, preferred and other convertible instruments in the company. Under the equity method of accounting, the Company does not reflect a partner company’s financial statements within the Company’s Consolidated Financial Statements; however, the Company’s share of the income or loss of such partner company is reflected in Equity income (loss) in the Consolidated Statements of Operations. The Company includes the carrying value of equity method partner companies in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets. Any excess of the Company’s cost over its underlying interest in the net assets of equity method partner companies that is allocated to intangible assets is amortized over the estimated useful lives of the related intangible assets. The Company reflects its share of the income or loss of the equity method partner companies on a one quarter lag. This reporting lag could result in a delay in recognition of the impact of changes in the business or operations of these partner companies.
When the Company’s carrying value in an equity method partner company is reduced to zero, the Company records no further losses in its Consolidated Statements of Operations unless the Company has an outstanding guarantee obligation or has committed additional funding to such equity method partner company. When such equity method partner company subsequently reports income, the Company will not record its share of such income until it exceeds the amount of the Company’s share of losses not previously recognized.
Other Method. We account for our equity interests in companies which are not accounted for under the equity method as equity securities without readily determinable fair values. We estimate the fair value of these securities based on our original cost less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Under this method, our share of the income or losses of such companies is not included in our Consolidated Statements of Operations. We include the carrying value of these investments in Ownership interests in and advances to partner companies on the Consolidated Balance Sheets.
Impairment of Ownership Interests In and Advances to Partner Companies
On a periodic basis, but no less frequently than quarterly, the Company evaluates the carrying value of its partner companies for possible impairment based on achievement of business plan objectives and milestones, the fair value of each partner company relative to its carrying value, the financial condition and prospects of the partner company and other relevant factors. The business plan objectives and milestones the Company considers include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as hiring of key employees or the establishment of strategic relationships. Management then determines whether there has been an other than temporary decline in the value of its ownership interest in the company. Impairment is measured as the amount by which the carrying value of an asset exceeds its fair value.
The fair value of privately held companies is generally determined based on the value at which independent third parties have invested or have committed to invest in these companies or based on other valuation methods, including discounted cash flows, valuation of comparable public companies and the valuation of acquisitions of similar companies.
Impairment charges related to equity method partner companies are included in Equity income (loss) in the Consolidated Statements of Operations. Impairment charges related to non-equity method partner companies and funds are included in Other income (loss), net in the Consolidated Statements of Operations.
The reduced cost basis of a previously impaired partner company accounted for using the Equity method are not written-up if circumstances suggest the value of the company has subsequently recovered.
Accounting Estimates
Accounting Estimates
The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. These estimates include the evaluation of the recoverability of the Company’s ownership interests in and advances to partner companies, the fair value of the credit facility repayment feature derivative, the current portion of the credit facility debt, the recoverability of deferred tax assets, stock-based compensation and commitments and contingencies. Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.
 
Certain amounts recorded to reflect the Company’s share of income or losses of partner companies accounted for under the equity method are based on unaudited results of operations of those companies and may require adjustments in the future when audits of these entities’ financial statements are completed.
It is reasonably possible that the Company’s accounting estimates with respect to the ultimate recoverability of the carrying value of the Company’s ownership interests in and advances to partner companies could change in the near term and that the effect of such changes on the financial statements could be material. At December 31, 2018, the Company believes the carrying value of the Company’s ownership interests in and advances to partner companies is not impaired, although there can be no assurance that the Company’s future results will confirm this assessment, that a significant write-down or write-off will not be required in the future or that a significant loss will not be recorded in the future upon the sale of a company.
Cash and Cash Equivalents and Marketable Securities
Cash and Cash Equivalents and Marketable Securities
The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits that are readily convertible into cash. The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. Held-to-maturity securities are carried at amortized cost, which approximates fair value. Marketable securities consist of held-to-maturity securities, primarily consisting of government agency bonds, commercial paper and certificates of deposits. Marketable securities with a maturity date greater than one year from the balance sheet date are considered long-term. The Company has not experienced any significant losses on cash equivalents and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]
Restricted Cash and Cash Equivalents
Restricted cash equivalents in prior periods represented cash required to be set aside by a contractual agreement as a shareholder representative for 2018 or with a bank as collateral for a letter of credit for 2017. During the first quarter of 2018, the restriction lapsed in connection with the termination of the related letter of credit. The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
 
December 31, 2018
 
December 31, 2017
 
(In thousands)
Cash and cash equivalents
$
7,703

 
$
20,751

Restricted cash
500

 

Long-term restricted cash equivalents

 
6,336

Total cash, cash equivalents, restricted cash and restricted cash equivalents
$
8,203

 
$
27,087

Financial Instruments
Financial Instruments
The Company’s financial instruments (principally cash and cash equivalents, marketable securities, accounts receivable, notes receivable, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The Company’s long-term debt is carried at cost.
Income Taxes
Income Taxes
The Company accounts for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company measures deferred tax assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period of the enactment date. The Company provides a valuation allowance against the net deferred tax asset for amounts which are not considered more likely than not to be realized.
Net Income (Loss) Per Share
Net Income (Loss) Per Share
The Company computes net income (loss) per share using the weighted average number of common shares outstanding during each year. The Company includes in diluted net income (loss) per share common stock equivalents (unless anti-dilutive) which would arise from the exercise of stock options and conversion of other convertible securities and adjusted, if applicable, for the effect on net income (loss) of such transactions. Diluted net income (loss) per share calculations adjust net income (loss) for the dilutive effect of common stock equivalents and convertible securities issued by the Company’s consolidated or equity method partner companies.
Segment Information
Segment Information
The Company operates as one operating segment based upon the similar nature of its technology-driven partner companies, the functional alignment of the organizational structure, and the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.
New Accounting Pronouncements and Changes in Accounting Principles [Text Block]
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 and related subsequent amendments outline a single comprehensive model to use to account for revenue arising from contracts with customers and supersede most current revenue recognition guidance. For public companies, the guidance was effective for annual periods beginning after December 15, 2017 and any interim periods that fall within that reporting period. For nonpublic companies, the guidance is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019 with early adoption permitted. As the new standard will supersede most existing revenue guidance, it could impact revenue and cost recognition for partner companies. Any change in revenue or cost recognition for partner companies could affect the Company's recognition of its share of the results of its equity method partner companies. On July 20, 2017, the SEC staff observer at the FASB’s Emerging Issues Task Force ("EITF") meeting announced that the SEC staff will not object if a private company equity method investee meeting the definition of a public business entity that otherwise would not meet the definition of a public business entity except for the inclusion of its financial statements or financial information in another entity’s filings with the SEC, uses private company adoption dates for the new revenue standard.  As a result, the Company's private, calendar year partner companies will adopt the new revenue standard for the year ending December 31, 2019.  The impact of adoption of the new revenue standard will be reflected in the Company’s financial results for the interim and annual reporting periods beginning in 2020 on a one quarter-lag basis.
In February 2016, the FASB issued ASU 2016-02, Leases. The guidance in ASU 2016-02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. The transitional guidance for adopting the requirements of ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities may elect to apply. The guidance in ASU 2016-02 will become effective for the Company on January 1, 2019. The Company anticipates making the accounting policy election not to recognize lease assets and lease liabilities for leases with a term of 12 months or less. As of December 31, 2018, the Company's only material long-term lease was for its corporate headquarters in Radnor, PA under a lease expiring in 2026. The Company also has immaterial office equipment leases expiring at various dates through 2020. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. Based on that evaluation, we expect to record as of January 1, 2019 a lease liability of approximately $2.9 million, a right-to-use asset of $2.2 million and to eliminate the deferred rent liability of $0.7 million currently included in other long-term liabilities.
v3.10.0.1
Significant Accounting Policies Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Restrictions on Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
 
December 31, 2018
 
December 31, 2017
 
(In thousands)
Cash and cash equivalents
$
7,703

 
$
20,751

Restricted cash
500

 

Long-term restricted cash equivalents

 
6,336

Total cash, cash equivalents, restricted cash and restricted cash equivalents
$
8,203

 
$
27,087

v3.10.0.1
Ownership Interests in and Advances to Partner Companies and Funds (Tables)
12 Months Ended
Dec. 31, 2018
Ownership Interests in and Advances to Partner Companies and Funds [Abstract]  
Summary of the carrying value of the Company's ownership interests in and advances to partner companies and private equity funds
The following summarizes the carrying value of the Company’s ownership interests in and advances to partner companies.
 
December 31, 2018
 
December 31, 2017
 
(In thousands)
Equity Method:
 
 
 
Partner companies
$
64,097

 
$
107,646

Private equity funds
392

 
443

 
64,489

 
108,089

Other Method:
 
 
 
Partner companies
15,260

 
2,762

Private equity funds
511

 
1,334

 
15,771

 
4,096

Advances to partner companies
15,325

 
22,506

 
$
95,585

 
$
134,691

Results of Operation
 
As of December 31,
 
2018
 
2017
 
(In thousands)
Balance Sheets:
 
 
 
Current assets
$
168,659

 
$
381,810

Non-current assets
24,432

 
134,707

Total assets
$
193,091

 
$
516,517

Current liabilities
$
88,988

 
$
408,438

Non-current liabilities
109,924

 
120,672

Shareholders’ equity
(5,821
)
 
(12,593
)
Total liabilities and shareholders’ equity
$
193,091

 
$
516,517

Number of partner companies
19

 
25



 
Year Ended December 31,
 
2018
 
2017
 
 
(In thousands)
Results of Operations:
 
 
 
 
Revenue
$
283,009

 
$
378,080

 
Gross profit
$
181,571

 
$
251,298

 
Net loss
$
(154,696
)
 
$
(187,121
)