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

As of June 30, 2009,2010, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $25,824,530$25,587,209 based upon the closing sales price of the Registrant’s Common Stock on such date as reported on the Over the Counter Bulletin Board of $0.74.$0.89.

AtOn March 15, 20102011 the Registrant had outstanding approximately 41,220,87441,647,394 shares of Common Stock, $0.001 par value per share.

SWK Holdings Corporation a Delaware corporation (the “Company” or “SWK”), was known until December 23, 2009 as KANA Software, Inc.  (“KANA”) and was headquartered in Menlo Park, California.  As used in this report,the Company,” “SWK,” “we,” “us,” “our,” and words of similar meaning refer to SWK Holdings Corporation.

The Company has viewed its ability to carry forward its net operating lossesloss carryforwards ("NOLs") as an important and substantial asset. On January 26, 2006, in order to preserve stockholder value by protecting its ability to carry forward our NOLs, the Company entered into a Rights Agreement that provided for a dividend distribution of one preferred share purchase right for each outstanding share of our common stock. The purchase rights become exercisable after the acquisition or attempted acquisition of 4.9% or more of our outstanding common stock without the prior approval of our Board of Directors (the “Board”). On January 13, 2009, the Company amended and restated the Rights Agreement to extend the expiration date from February 3, 2009 to February 3, 2012 and to make certain other changes. The Co mpanyCompany again amended the Rights Agreement on December 22, 2009 to exclude the Asset Sale (as defined below) from triggering the Rights Agreement and to make certain other changes. The Board adopted the rights agreement to preserve stockholder value by protecting our ability to carry forward our net operating losses (“NOLs”). The Board believes that these NOL carryforwards are a substantial asset of the Company.  The amended and restated Rights Agreement and subsequent amendment are included as Exhibits 4.01 and 4.02 to this Annual Report on Form 10-K.

At the closing of the Asset Sale, the Company amended its certificate of incorporation to change its name from Kana Software, Inc. to SWK Holdings Corporation and relocated its headquarters to Provo, Utah. To distinguish the historical business, which is no longer conducted by the Company, throughout this report (i) we refer to the Company as KANA“KANA” with respect to historical business activities conducted prior to December 23, 2009, and (ii) we refer to the Company as SWK“SWK” or the Company“Company” with respect to all other matters.

Our principal executive offices are located at 5314 N. River Run Drive, Suite 350, Provo, Utah 84604. Our Internet website is http://www.swkhold.com.

We encounter competition from other entities also seeking to acquire profitable businesses and investments. Such entities include private equity companies, venture capital funds, blank check companies, leveraged buyout funds, as well as operating businesses seeking acquisitions. Many of these entities are well-established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these entities possess greater financial, technical, human, and other resources than the Company.

As of December 31, 2009, we had no full-time employees, compared to 229 full-time employees as of December 31, 2008.  As of March 15, 2010, we had two employees, comprised of our Interim Chief Executive Officer and our Interim Chief Financial Officer.three full-time employees.

Since the completion of the Asset Sale, we have been seeking to redeploy our cash to maximize value for our stockholders and are seeking, analyzing and evaluating potential acquisition candidates. Our goal is to redeploy our existing assets to acquire or invest in, one or more operating businesses with existing or prospective taxable income, or from which we can realize capital gains, that can be offset by use of our NOL carryforwards. We are using a value-focused investment strategy and have been focusing our acquisition search on U.S.-based businesses. As of the date hereof, we are in the process of identifyingWe continue to identify and reviewingreview candidates for acquisition or other investment. We may not be able to identify any acquisition candidate at a price we consider fair and appropriate. If we do identify a suitable acquisition candidate, we may not be able to successfully and satisfactorily negotiate the terms of thean acquisition. Furthermore, if we are successful in completing an acquisition, the integration of the acquired business will involve a number of risks and presents financial, managerial and operational challenges. Therefore, we cannot assure that our acquisition strategy will enhance value to stockholders.

We expect that the investigation of each specific acquisition target and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial time and attention and substantial costs, including, but not limited to, costs for accountants, attorneys and other advisors. In 2010, our total cash flow from operations spent pursuant to this strategy totaled approximately $1.3 million. Our declining cash may continue at this rate, or at a higher rate as we determine is appropriate, until such time as we are able to complete an acquisition.

In addition, we may determine to pay finders’, exclusivity or similar fees in connection with structuring and negotiating business combinations. If we decide not to further pursue a specific business combination, the costs incurred, which may include finders’, exclusivity or similar fees, may not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition target, we may fail to consummate the transaction for any number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially and adversely affect our subsequent attempts to locate and combine with another business.

We are currently seeking to make one or more acquisitions to maximize value to all stockholders, which may benefit from the utilization of our substantial NOL carryforwards as of the date hereof. However, we will pursue any acquisition or transaction which the Board believes to be in the best interests of the Company and its stockholders, and NOL carryforwards will be one of several factors considered by the Board in determining whether to pursue any such transaction. The Board may determine to pursue a transaction which limits our ability to use some or all of our NOL carryforwards. In addition, if we are unable to complete an acquisition, we may lose some or all of our NOL carryforwards, or they may expire. Our federal NOL carryforwards begin expiring this year and expire by 2030, with the majority of such NOLs expiring by 2022.

If the proceeds from the Asset Sale are insufficient for a proposed acquisition, we may be required to seek additional financing through the issuance of equity or debt securities or other arrangements to finance the transaction. Due to the fact that we currently have no income other than interest received on our cash deposits, borrowing requirements and other factors, we cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination, we may be compelled to restructure or abandon that particular business combination and seek alternative acquisition targets. In addition, if we complete a business combination, we may require additional financing to fund the operations or growth of acquisition target, which may be unavailable to us. The failure to secure additional financing could have a material adverse effect on the continued development or growth of our combined business or businesses.

We are seeking to acquire a company with principal business operations in one or more industries that provide significant opportunities for growth. We are not limited to any particular industry or type of business. Accordingly, there is no current basis for stockholders to evaluate the possible merits or risks of any particular industries in which we may ultimately operate or the target business or businesses in which we may invest. Although we will evaluate the risks inherent in any target business in which we determine to invest, we cannot assure you that all of the material risks related to such business will be properly assessed. Even if we properly assess those risks, some of them may be outside of our control or ability to affect or predict.

Applicable securities rules prohibit shell companies from using (i) a Form S-8 registration statement to register securities pursuant to employee compensation plans for so long as we are a shell company and for a period of 60 days thereafter and (ii) Form S-3 for the registration of a primary offering of securities for so long as we are a shell company and for 12 months thereafter.

Additionally, Form 8-K requires shell companies to provide more detailed disclosure upon completion of a transaction that causes it to cease being a shell company. To the extent that we acquire a business in the future, we must file a current report on Form 8-K containing the financial and other information required in a registration statement on Form 10 within four business days following completion of such a transaction.

To assist the SEC in the identification of shell companies, once we become a shell company, we will also be required to check a box on our quarterly reports on Form 10-Q and our annual reports on Form 10-K indicating that we are a shell company.

Our cash and cash equivalents may be held in the form of cash or marketable securities and are highly liquid investments with original maturities of three months or less at the time of purchase.  Currently, our cash and cash equivalents consist entirely of cash, but we may determine to invest in marketable securities at a later date. We maintain our cash with one or more reputable major financial institutions and would maintain any cash equivalents with reputable financial institutions. Deposits of cash with these banks exceed the Federal Deposit Insurance Corporation insurance limits. While we regularly monitor the cash balances in the operating accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which we deposit fails or is subjec tsubject to other adverse conditions in the financial or credit markets. We can provide no assurance that access to our invested cash or cash equivalents will not be impacted by adverse conditions in the financial and credit markets.

Since October 2005, our common stock has been quoted on the Over the Counter Bulletin Board (“OTCBB”). The OTCBB is generally considered less efficient than exchanges such as The New York Stock Exchange and The NASDAQ Stock Market. Quotation of our common stock on the OTCBB may reduce the liquidity of our securities, limit the number of investors who trade in our securities, result in a lower stock price and larger spread in the bid and ask prices for shares of our common stock and could have an adverse effect on us. Additionally, we may become subject to the SEC rules that affect “penny stocks,” which are stocks below $5.00 per share that are not quoted on The NASDAQ Stock Market. These SEC rules would make it more difficult for brokers to find buyers for our securities and could lowe rlower the net sales prices that our stockholders are able to obtain. If our price of common stock remains low, we may not be able to raise equity capital.

Our listing on the OTCBB and our low stock price may greatly impair our ability to raise additionalany future necessary capital through equity or debt financing and significantly increase the dilution to our current stockholders caused by any issuance of equity in financing or other transactions. The price at which we would issue shares in such transactions is generally based on the market price of our common stock, and a decline in the stock price could result in our need to issue a greater number of shares to raise a given amount of funding.

In addition, because our common stock is not listed on a principal national exchange, we are subject to Rule 15g-9 under the Exchange Act, which imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell our common stock and affect the ability of holders to sell their shares of our common stock in the secondary market. Moreover, investors may be less interested in purchasing low-priced securities because the brokerage commissions, as a percen tagepercentage of the total transaction value, tend to be higher for such securities, and some investment funds will not invest in low-priced securities (other than those which focus on small-capitalization companies or low-priced securities).

Our continuing preparation for and implementation of various corporate governance reforms and enhanced disclosure laws and regulations adopted in recent years requires us to incur significant additional accounting and legal costs. We are subject to accounting disclosures required by laws and regulations adopted in connection with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). In particular, we are required to provide a report on our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act. Any unanticipated difficulties in preparing for and implementing these and other corporate governance and reporting reforms could result in material delays in compliance or significantly increase our costs. Any failure to timely prepare for and implement the reforms required by new laws an dand regulations could significantly harm our business, operating results and financial condition.

The Board has the authority to issue up to 5,000,000 shares of preferred stock. Without any further vote or action on the part of the stockholders, the Board has the authority to determine the price, rights, preferences, privileges, and restrictions of the preferred stock. This preferred stock, if issued, might have preference over and harm the rights of the holders of common stock. Although the ability to issue this preferred stock provides us with flexibility in connection with possible acquisitions and other corporate purposes, it can also be used to make it more difficult for a third party to acquire a majority of our outstanding voting stock. We currently have no plans to issue preferred stock.

Additionally, we have a stockholder rights plan that is intended to protect our ability to utilize our NOL carryforwards and which would also make it difficult for a third party to acquire a significant number of shares of our common stock.

Our certificate of incorporation and bylaws include provisions that may deter an unsolicited offer to purchase us. These provisions, coupled with the provisions of the Delaware General Corporation Law, may delay or impede a merger, tender offer or proxy contest. Furthermore, the Board is divided into three classes, only one of which is elected each year. In addition, directors are only removable by the affirmative vote of at least two-thirds of all classes of voting stock. These factors may further delay or prevent a change of control of the Company.

To pursue our acquisition strategy following the closing of the Asset Sale, we will continue to require management with experience in identifying attractive acquisition candidates and executing acquisition transactions. Given the specialized nature of these skills and the fact that the Company faces competition in completing acquisitions, the inability of the Company to recruit and/or retain a talented management team could have a detrimental effect on the market price of our common stock and our ability to execute our strategy.

The Investment Company Act of 1940, as amended (the “Investment Company Act”), requires registration as an investment company, for companies that are engaged primarily in the business of investing, reinvesting, owning, holding or trading securities. We are not engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities. However, a company may fall within the scope of being an “inadvertent investment company” under section 3(a)(1)(C) of the such Act if the value of its investment securities (as defined in the Investment Company Act) is more than 40% of its total assets (exclusive of government securities and cash and certain cash equivalents).

Currently, our assets consist primarily of cash a receivable of $1.4 million in escrowed consideration from the Asset Sale and nominal other assets. We are pursuing an acquisition strategy. While our goal is to acquire one or more operating businesses, we may determine to invest in securities of another company in connection with such goal. Rule 3a-2 of the Investment Company Act and similar SEC principles and guidance provide a grace period of one year from December 23, 2009 (the date of stockholder approval of the Asset Sale) from the registration requirements under the Investment Company Act.   Pursuant to a resolution by the Board, we are eligible for this one-year grace period.

If we were unable to rely on an exclusion under the Investment Company Act and were deemed to be an inadvertent investment company due to an investment in marketable securities or otherwise, we would be forced to comply with substantive requirements of the Investment Company Act, including: (i) limitations on our ability to borrow; (ii) limitations on our capital structure; (iii) restrictions on acquisitions of interests in associated companies; (iv) prohibitions on transactions with affiliates; (v) restrictions on specific investments; (vi) limitations on our ability to issue stock options; and (vii) compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations. Registration as an investment company would subject us to additional costs, which may be substantial, and restrictions that would significa ntlysignificantly impair our ability to pursue our fundamental business strategy of acquiring and operating an established business.

Not applicable.

Our corporate headquarters are located in Provo, Utah, where we sublease approximately 2,300 square feet on a month-to-month basis under an agreement with Nightwatch Capital Advisors, LLC, a company of which John Nemelka, our Interim Chief Executive Officer is the Managing Principal, and Paul Burgon, our Interim Chief Financial Officer, is a Principal and the Chief Financial Officer. Our rent under this sublease is approximately $4,000$4,100 per month. We believe these facilities are adequate for our business requirements.

In October 2007, a lawsuit was filed in the United States District Court for the Western District of Washington by Ms. Vanessa Simmonds against certain of the underwriters of the Company’s initial public offering.  The plaintiff alleges that the underwriters violated section 16(b) of the Securities Exchange Act of 1934, as amended, by engaging in short-swing trades, and seeks disgorgement of profits from the underwriters in amounts to be proven at trial.  On February 28, 2008, Ms. Simmonds filed an amended complaint.  The suit names the Company as a nominal defendant, contains no claims against the Company and seeks no relief from the Company.  This lawsuit is one of more than fifty similar actions filed in the same court.  On July 25, 2008, the underwriter defendants in the va riousvarious actions filed a joint motion to dismiss the complaints for failure to state a claim.  In addition, certain issuer defendants in the various actions filed a joint motion to dismiss the complaints for failure to state a claim.  The Company entered into a stipulation with the plaintiff, entered as an order by the Court, that the Company is not required to answer or otherwise respond to the amended complaint.  Accordingly, the Company did not join the motion to dismiss filed by certain issuers.  On March 12, 2009, the Court dismissed the complaint in this lawsuit with prejudice.  On April 10, 2009, the plaintiff filed a notice of appeal of the District Court’s order, and thereafter the underwriter defendants filed a cross appeal to a portion of the District Court’s order that dismissed thirty (30) of the cases without prejudice following the moving issuers’ motion to dismiss.  On on May 27,22, 2009 the Ninth Circuit issued an order st ating that the cases were not selected for inclusion in the mediation program, and on May 22, 2009 issued an order granting the parties’ joint motion filed on May 22, 2009 to consolidate the 54 appeals and 30 cross-appeals.  Under the current briefing schedule, the briefing was completed on November 17, 2009.  No date has been set for oral argument inOn December 2, 2010, the Ninth Circuit.Circuit affirmed dismissal of the lawsuits against the 30 issuer defendants on the grounds of inadequate demand, but ordered the district court to dismiss these lawsuits with prejudice.  The Ninth Circuit reversed dismissal on statute of limitations grounds, but remanded all of the remaining cases to the district court with instructions to allow the underwriter defendants and/or the remaining issuer defendants to file motions to dismiss for inadequate demand.  On December 16, 2010, plaintiff and the underwriter defendants separately petitioned for a rehearing and a rehearing en banc, which petitions were denied on January 18, 2011.  On January 25 and 26, 2011, the Ninth Circuit granted the motions of the underwriter defendants and of the plaintiff to stay the issuance of the court’s mandate pending those  parties’ respective petitions for writ of certiorari to the United States Supreme Court.

On December 20, 2009, the Company, then known as  Kana Software, Inc., filed a lawsuit in the United States District Court for the District of Delaware against several defendants: Versata Enterprises, Inc., Gensym Corp., Clear Technology, Inc., Versata Development Group, Inc., Tenfold Corp., and Versata, Inc.  In the litigation, the Company is seeking a declaratory judgment that it does not infringe several patents.  The Company also seeks a declaratory judgment of invalidity of all of the patents-in-suit.  The case has been assigned to Judge Sue L. Robinson.  On December 23, 2009, the Company completed the Asset Sale, pursuant to which (i) the Company amended its certificate of incorporation to change its name to SWK Holdings Corporation, (ii) the Company sold its operating business, inc ludingincluding substantially all of its intellectual property, including all patents, to Kay Technology and (iii) Kay Technology assumed substantially all liabilities relating to the Company’s operating business, including, but not limited to, liabilities related to intellectual property and patents, and agreed to indemnify the Company for losses incurred with respect thereto.   On December 23, 2009, the Company filed an amended complaint adding Kay Technology as a named plaintiff in the lawsuit.   On February 16, 2010, Defendants filed an answer to the amended complaint.  In their answer, Defendants asserted two counterclaims: a counterclaim alleging infringement of a patent by software products including Kana IQ, and a counterclaim alleging infringement of another patent by software products including Kana Response.  On March 9, 2010, the Company and Kay Technology filed an answer to Defendants’ counterclaims, denying any infringement. On April 14, 2010, the Company was dismissed as a party to these lawsuits.

On December 21, 2009, the Company, then known as Kana Software, Inc., filed a lawsuit in the United States District Court for the District of Delaware against Versata Enterprises, Inc. and Everest Software, Inc. alleging infringement of U.S. Patent No. 6,941,304 by defendants' making, selling, offering to sell and/or importing certain email communication software solutions.   The case has been assigned to Judge Sue L. Robinson.  On December 23, 2009, the Company completed the Asset Sale, pursuant to which (i) the Company amended its certificate of incorporation to change its name to SWK Holdings Corporation, (ii) the Company sold its operating business, including  substantially all of its intellectual property, including all patents, to Kay Technology and (iii) Kay Technology assumed substanti allysubstantially all liabilities relating to the Company’s operating business, including, but not limited to, liabilities related to intellectual property and patents, and agreed to indemnify the Company for losses incurred with respect thereto.   On December 23, 2009, the Company filed an amended complaint adding Kay Technology as a named plaintiff in the lawsuit.   On February 16, 2010, Defendants filed an answer to the amended complaint.  In their answer, Defendants asserted a counterclaim seeking a declaratory judgment that the asserted patent is invalid.  On March 9, 2010, the Company and Kay Technology filed an answer to Defendants’ counterclaim, denying that the asserted patent is invalid. On April 14, 2010, the Company was dismissed as a party to these lawsuits.

The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on the Company’s consolidated results of operations, balance sheets and cash flows due to defense costs, and divert management resources.

The Company trades on the OTCBB. In connection with the Asset Sale, on February 4, 2010, our ticker symbol changed to “SWKH.OB.”  From December 2005 to February 3, 2010, our common stock traded on the OTCBB under the symbol “KANA.OB”. The table below sets forth the high and low bid information for our common stock as reported on the OTCBB for each full quarterly period within the two most recent fiscal years.

There were approximately 887816 stockholders of record of our common stock as of March 15, 2010.2011. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

To date, we have not paid any cash dividends on our capital stock. If on or before June 23, 2010 we have not entered into definitive agreements with respect to one or more transactions requiring 50% or more of our cash (and cash equivalents, if any) as of such date, we expect to call a meeting of stockholders on or before August 2, 2010 to vote on a proposal to retain all of our cash for the purpose of investing in or acquiring control of one or more operating businesses.  We are not under any obligation, contractually or otherwise, to call this meeting to vote on the return of cash to our stockholders. However, it is the policy of our Board that we call this meeting if we have not entered into such definitive agreements on or before June 23, 2010.

ThereOn November 8, 2010, the Company granted shares of restricted common stock to its non-employee directors. Michael Weinberg, the Chairman of the Board, was granted 200,000 shares, and William Clifford and Michael Margolis were no unregistered saleseach granted 100,000 shares. Shares are forfeited if not earned within five years from the date of equity securitiesthe grant, and vest when the Company’s average closing stock price exceeds certain levels for sixty consecutive calendar days. 50% of each award vests at a stock price of $1.80, 25% vests at $2.25, and 25% vests at $2.70. These shares were not registered under the Securities Act of 1933, as amended in reliance upon Rule 701 promulgated under the period covered by this report.Securities Act of 1933, as amended, and Rule 12h-1 promulgated under the Securities Exchange Act of 1934, as amended.

Information regarding securities authorized for issuanceThe following table provides information as of December 31, 2010 with respect to the shares of common stock issuable under ourexisting equity incentivecompensation plans. The category “Equity compensation plans may be foundapproved by security holders” in the section captionedtable below consists of the KANA 1999 Stock Incentive Plan, as amended (the “1999 Plan”). The category “Equity Compensation Plan Information” appearingcompensation plans not approved by security holders” in the definitive Proxy Statement to be delivered to stockholders in connection withtable below consists of the SWK Holdings Corporation 2010 Annual Meeting of Stockholders. This information is incorporated herein by reference.Equity Incentive Plan (the “2010 Plan”).  

The Company was known until December 23, 2009 as KANA Software, Inc. (“KANA”) and was headquartered in Menlo Park, California.  For a discussion of our historical business, see “Historical Business” below.

Following an extensive strategic process, on October 26, 2009, the Company entered into the Asset Purchase Agreement with Kay Technology, an affiliate of AKKR.Accel-KKR Capital Partners III L.P. (“AKKR”). Pursuant to this agreement, on December 23, 2009, the Company sold to Kay Technology substantially all of its assets other than: (i) NOLs, (ii) certain other deferred tax assets, (iii) cash received upon the exercise of certain options and warrants, (iv) certain potential income tax refunds, (v) stockholder and stock option records, (vi) contracts related to any equity investments and our stockholder rights plan, (vii) insurance policies and (viii) certain other immaterial assets. Kay Technology assumed substantially all of the Company’s liabilities, other than those: (i) arising under the Asset Purchase Agreement, including related taxes and transactio ntransaction costs, (ii) related to the assets retained in the Asset Sale, (iii) insured by our insurance policies or related to indemnification of directors or officers, (iv) relating to the payment of income taxes for periods prior to the closing or as a transferee or successor, (v) with respect to certain employees not hired by Kay Technology, (vi)  in connection with contracts related to any equity investment in KANA and our stockholder rights plan and (vii) arising from any claims by KANA’s stockholders or other equity holders.

The consideration in the transaction was $40.6 million, of which $38.6 million in cash was paid to the Company at closing and $1.0 million was paid to an escrow to satisfy SWK’s indemnification obligations for certain specified tax-related contingencies. (See “Risks RelatedWe received approximately $481,000 from this escrow in the fourth quarter of 2010. On March 28, 2011, we agreed with Kay Technology that approximately $167,000 would be paid to the Company and our Business. The Company may not receive any ofus from the remaining proceeds fromescrow account. We expect to collect these funds in the Asset Sale being held in Escrow.”)near future. An additional $1.0 million was paid into the Purchase Price Escrow.  We have agreed with Kay Technology that the full amount of the $1.0 million Purchase Price Escrow will be released to us, along with approximately $61,000 in additional post-closing adjustments to the consideration.  We expect to receive these amountsat closing, which we received in the second quarter of 2010.

At the closing of the Asset Sale, the Company changed its name from Kana Software, Inc. to SWK Holdings Corporation.

Since the completion of the Asset Sale, we have been seeking to redeploy our cash to maximize value for our stockholders and are seeking, analyzing and evaluating potential acquisition candidates. Our goal is to redeploy our existing assets to acquire, or invest in, one or more operating businesses with existing or prospective taxable income, or from which we can realize capital gains, that can be offset by use of our NOL carryforwards. We are using a value-focused strategy and are focusing our acquisition search on U.S.-based businesses. As of the date hereof, we are in the process of identifyingWe continue to identify and reviewingreview candidates for acquisition or other investment. We are unable to assure that we will find suitable candidates or that we will be able to utilize our existing NOL carryforwards. (See “Risks Related to Our Acquisition Strategy” under Item 1A above).  We may make an acquisition which will utilize the Company’s significant NOLs and have been focusing our acquisition search on U.S.-based businesses.

From and after the completion of the Asset Sale, we have maintained our cash at one or more large financial institutions. As of the date hereof, we are earning annual interest income of approximately 0.7%0.65% on our cash and expect to continue to receive interest at current market rates.

From 1996 to December 23, 2009, the Company engaged in the development, marketing and support of customer communications software products. Its applications were designed to integrate with other enterprise software and legacy systems and provide customers with capabilities for personalization, customer profile management, inquiry management, universal business rules, knowledge management and work flow. KANA used data modeling to make data located in external systems available in its application without requiring the data to be moved or replicated. KANA also offered customer support and professional services, such as consulting and education. KANA served financial services, communications, healthcare, government high technology, travel/hospitality and retail industries. The Company so ldsold its products primarily in North America, Europe and Asia through a direct sales force and third party integrators.

Due to our limited operations and substantial cash balance following the Asset Sale, we have adequate cash to fund our operations, working capital and capital expenditure requirements, comprised primarily of public company expenses and costs related to our acquisition search through December 31, 2010.2011.

As of December 31, 2009, following the Asset Sale on December 23, 2009,2010, we had nothree full-time employees.  This represents a decrease from 229 employees at December 31, 2008.  As of March 15, 2010, there were two employees.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. This forms the basis of judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actua lactual results could differ materially from our estimates.

We believe the following discussion addresses our most critical accounting policies. These critical accounting policies require management to make difficult, subjective, and complex judgments, and are most important to the portrayal of our financial condition and results of operations.

Please refer to Note 1 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further description of our critical accounting policies.

Revenue from software license agreements is recognized when the basic criteria of software revenue recognition have been met (i.e., persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable and collection is probable). We use the residual method described in the guidance to recognize revenue when a license agreement includes one or more elements to be delivered at a future date and vendor-specific objective evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as license revenue. If evidence of the fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized when delivery of those element selements occurs or when fair value can be established.

For all sales we use either a signed license agreement, a signed amendment to an existing license agreement, a signed order form, a binding purchase order where we either have a signed master license agreement or an order form signed by the Company, or a signed statement of work as evidence of an arrangement.

Software delivery is primarily by electronic means. If the software or other deliverable is subject to acceptance for a specified period after the delivery, revenue is deferred until the acceptance period has expired or the acceptance provision has been met.

When licenses are sold together with consulting services, license fees are recognized upon delivery, provided that (i) the basic criteria of software revenue recognition have been met, (ii) payment of the license fees is not dependent upon the performance of the consulting services and (iii) the consulting services do not provide significant customization of the software products and are not essential to the functionality of the software that was delivered. KANA did not provide significant customization of its software products.

Revenue arrangements with extended payment terms are generally considered not to be fixed or determinable, and we generally do not recognize revenue on these arrangements until the customer payments become due and all other revenue recognition criteria have been met.

Probability of collection is based upon assessment of the customer’s financial condition through review of their current financial statements or publicly-available credit reports. For sales to existing customers, prior payment history was also considered in assessing probability of collection. KANA was required to exercise significant judgment in deciding whether collectability was reasonably assured, and such judgments may have materially affected the timing of our revenue recognition and our results of operations.

Services revenues include revenues for consulting services, customer support and training, and managed services. Consulting services revenues and the related cost of services are generally recognized on a time and materials basis. For consulting services contracts that have a fixed fee, we recognizeKANA recognized the license and professional consulting services revenues using either the percentage-of-completion method or the completed contract method as prescribed by the guidance. Our consultingConsulting arrangements do not include significant customization of the software. Customer support agreements provide technical support and the right to unspecified future upgrades on an if-and-when available basis. Customer support revenues are recognized ratably over the term of the support period (generally one year). Training services revenues are recogniz edrecognized as the related training services are delivered. The unrecognized portion of amounts billed in advance of delivery for services is recorded as deferred revenue. Revenues from managed services are recognized ratably over the term of the arrangement, while application fees are recognized ratably over the sum of the term of the arrangement and the term of expected renewals.

Vendor-specific objective evidence for consulting and training services is based on the price charged when an element is sold separately or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change before market introduction. Vendor-specific objective evidence for support services is based on the price charged when an element is sold separately or the stated contractual renewal rates.

In April 2009, the Company signed a Settlement and Release Agreement with RMJM Group, Inc. (“RMJM”), the sub landlord for one of the properties included in the restructuring accrual that provided for RMJM to draw down a letter of credit held by RMJM as collateral for the Company’s sublease from RMJM. The proceeds of the draw down and current cash deposit held by RMJM were applied to all remaining lease payments and estimated additional operating costs for the lease that expired in January 2010. The remaining liability was transferred to Kay Technology as part of the Asset Sale. Kay Technology is responsible for any additional charges over the estimate through the remaining lease term. The funds in excess of the remaining rent and estimated additional operating costs were returned to Kay Technology.

In April 2009, the Company implemented various cost reduction activities to reduce operating costs. The expense related to reduction in workforce was approximately $532,000 and the expense related to the Settlement and Release Agreement with RMJM was approximately $167,000. Additionally, in June 2009, KANA had another facility settlement for one of its European offices, and the related expense was approximately $106,000. During the three months ended September 30, 2009, the Company recognized approximately $498,000 of expense related to a reduction in workforce and $38,000 of facilities related costs.

All liabilities related to the foregoing matters were assumed by Kay Technology in the Asset Sale.

We evaluated all potential indicators of impairment of goodwill and intangible assets, but at a minimum, tested goodwill and intangible assets for impairment on an annual basis. Our judgments regarding the existence of impairment indicators were based on market conditions and operational performance. All goodwill and intangible assets were written off as part of the Asset Sale and included in the calculation of gain on sale of assets.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We are subject to lawsuits and other claims and proceedings. We assess the likelihood of any adverse judgments or outcomes to these matters as well as ranges of probable losses. A determination of the amount of loss contingency required, if any, for these matters are made after careful analysis of each individual matter. The required loss contingencies may change in the future as the facts and circumstances of each matter changes.

We account for stock-based compensation in accordance with the current Financial Accounting Standards Board (“FASB”) guidance, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors including employee stock options based on estimated fair values.

The guidance requires companies to estimate the fair value of employee stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of operations. Employee stock-based compensation expense for each of the years ended December 31, 2010 and 2009 was $8,000 and 2008 was $1.6 million and $2.2 million, respectively.

We utilize the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value for stock-based awards. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

For stock options granted to non-employees, we recognize compensation expense in accordance with the FASB guidance, which require such equity instruments to be recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic fair value adjustments as the underlying equity instruments vest. We amortize compensation expense related to non-employee stock options in accordance with FASB guidance. Also see “Stock-based Compensation” in Note 1 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

We discuss the potential impact of recent accounting pronouncements in Note 1 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

The following table sets forth selected data for the periods presented. Percentages are expressed as a percentage of total revenues.revenues; given that 2010 revenues were $0, the table below is for the year ended December 31, 2009.

Total revenues decreased by 31% towere $45.3 million for the year ended December 31, 2009, from $65.2and consisted of $5.7 million for the year ended December 31, 2008, primarily as a result of lower license revenues and $39.6 million of services revenues in 2009 compared to 2008.revenues.

License revenues include licensing fees only and exclude associated support and consulting revenues. The majority of KANA’s licenses to customers arewere perpetual and associated revenues are recognized upon delivery, provided that all revenue recognition criteria arewere met as discussed in “Revenue Recognition” under “Critical Accounting Policies and Estimates” above. License revenues decreased by 68% to $5.7 million for 2009 from $17.7 million for 2008. This decrease in license revenues was based, in part, on additional levels of approvals inside KANA’s customers’ organizations that resulted in longer sales cycles and reduced levels of overall demand brought on as a result of macro economic conditions. Historically, services revenues consisted of support revenues and professional services revenues and fees. Support revenues related to providing customer support, product maintenance and updates to customers. Professional services revenues related to providing consulting, training and implementation services to customers including managed services. Services revenues decreased by 17% to $39.6 million

There were no revenue generating operations for the year ended December 31, 2009 compared to $47.5 million for 2008. Support revenues were the largest component of services revenues, and in 2009, support revenues decreased slightly. The other component of services revenues, professional services fees, decreased in 2009 from 2008 primarily2010, as a result of reduced new license implementation services.

Revenues from international sales were $10.3 million, or 23% of total revenues, in the year ended December 31, 2009 and $16.4 million, or 25% of total revenues, in the year ended December 31, 2008.2009. KANA’s international revenues were derived from sales in Europe and Asia Pacific.

Total cost of revenues decreased by 20% towere $17.0 million for the year ended December 31, 2009 from $21.2 million for the year ended December 31, 2008.2009.

 

In April 2009, weKANA signed a Settlement and Release Agreement with RMJM Group, Inc. (“RMJM”), the sub landlord for one of the properties included in the restructuring accrual that provided for RMJM to draw down a letter of credit held by RMJM as collateral for our sublease from RMJM. The proceeds of the draw down and current cash deposit held by RMJM will bewere applied to all remaining lease payments, and estimated additional operating costs for the remainder of the lease that expiresexpired in January 2010. The remaining liability was transferred to Kay Technology as part of the Asset Sale. Kay Technology iswas responsible for any additional charges over the estimate through the remaining lease term. The funds in excess of the remaining rent and estimated additional operating costs will bewere returned to Kay Technology.& #160; The expense related to the Settlement and Release Agreement with RMJM was approximately $167,000.

In April 2009, KANA implemented various cost reduction activities to reduce operating costs. The expense related to reduction in workforce was approximately $532,000. Additionally, in June 2009, KANA had another facility settlement for a European office and the related expense was approximately $106,000. During the three months ended September 30, 2009, KANA recognized approximately $498,000 of expense related to a reduction in workforce and $38,000 of facilities related costs.

The following table summarizes restructuring activities for the yearsyear ended December 31, 2009 and 2008 (in thousands):

KANAWe have incurred net operating losses on a consolidated basis for all years from inception through 2009.2010. Accordingly, we have recorded a valuation allowance for the full amount of gross deferred tax assets, as the future realization of the tax benefit is not currently more likely than not. In 20092010, the Company recognized income tax benefit of $20,000 related to the lapse of the statute of limitations for a portion of our uncertain tax positions. The net deferred tax asset for the year ended December 31, 2010 was zero, as the valuation allowance and 2008,gross deferred tax assets decreased by approximately $6.0 million primarily due to the expiration of certain deferred tax assets.

In 2009, certain of KANA’s foreign subsidiaries were profitable, based upon application of our intercompany transfer pricing agreements, which resulted in the Company reporting income tax expense in those foreign jurisdictions totaling approximately $43,000 and $87,000 for the yearsyear ended December 31, 2009 and 2008, respectively.2009. We also recorded an adjustment to release approximately $11,000 and $25,000 of excess income tax reserves for the yearsyear ended December 31, 2009, and 2008, respectively, and an adjustment to record refundab lerefundable research and development credits of approximately $28,000 and $57,000 for the yearsyear ended December 31, 2009 and 2008, respectively.2009.

 

As of December 31, 2009,2010, we had operating loss carryforwards for federal and California income tax purposes of approximately $481$478 million and $138$136 million, respectively. The federal net operating loss carryforwards, began expiring in 2011 and, if not offset against future taxable income, will expire by 2030.2031.

As of December 31, 2009,2010, we had $38.6$39.3 million in cash, compared to $7.0$38.6 million in cash and cash equivalents as of December 31, 2008.2009. As of December 31, 2009,2010, we had positive working capital of $39.8$39.1 million.

On December 23, 2009, the Company completed the Asset Sale, whereby it sold substantially all of its assets to Kay TechnologySale. The consideration in exchange for cash consideration of $40.6 million.   Of the transaction was $40.6 million, in consideration,of which $38.6 million in cash was paid to the Company at closing and $1.0 million was paid intoto an escrow to satisfy SWK’s indemnification obligations for certain specified tax-related contingencies. (See “The Company may not receive anyWe received approximately $481,000 from this escrow in the fourth quarter of 2010, net of expenses. On March 28, 2011, we agreed with Kay Technology that approximately $167,000 would be paid to us from the remaining proceeds fromescrow account. We expect to collect these funds in the Asset Sale being held in Escrow.” under Item 1A above.)near future.  An additional $1.0 million was paid into the Purchase Price Escrow.  We have agreed with Kay Technology that the full amount of the Purchase Price Escrow will be released to us, along with approximately $61,000 in additional post-closing adjustments to the consideration.  We expect to receive these amountsat closing, which we received in the second quarter of 2010.

The Asset Purchase Agreement provided for a reduction in the purchase price if certain customer and vendor consents were not received prior to the closing, but allowed the Company to recoup such reduction with respect to any consent received within 30 days of the closing. On February 22, 2010, Kay Technology paid to the Company approximately $382,000 for customer and vendor consents received after the closing of the Asset Sale.

On May 26, 2009, weKANA entered into another Loan and Security Modification Agreement (“May Amendment”) with Bridge that provided a one-time waiver for non-compliance with certain financial covenants for the quarter ended March 31, 2009 and the month ended April 30, 2009. The May Amendment also set the total loan facility amount to $6.0 million and extended the maturity date to June 30, 2010. As a requirement of the May Amendment, availability under the existing revolving line of credit was used to prepay all amounts outstanding under the existing term loans for equipment. Additionally, modifications were made to the existing restrictive covenants, and certain covenants were added related to raising additional capital.

On July 30, 2009, weKANA entered into a Loan and Security Modification Agreement to the March Loan Facility (“July Amendment”) that modified the March Loan Facility to provide for subordinated indebtedness of $1.0 million from Agility Capital, LLC (“Agility”).

 

In connection with the Asset Sale, Kay Technology fully paid all outstanding amounts payable to Bridge. As of December 31, 2009, we had terminated all agreements with Bridge and closed the line of credit.

Not applicable.

We have audited the accompanying consolidated balance sheets of SWK Holdings Corporation and its subsidiaries (the “Company”) as of December 31, 20092010 and 2008,2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2009.2010. Our audits also included the financial statement schedule listed in Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor have we been engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting t hethe amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SWK Holdings Corporation and its subsidiaries as of December 31, 20092010 and 2008,2009, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2009,2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in December 2009 the Company sold substantially all of its assets to Kay Technology Corp, Inc. As a result of this transaction, the Company has no ongoing business operations. Management’s plans as to these matters are also described in Note 1.

 

SWK Holdings Corporation and its subsidiaries (“the Company,” “SWK,” “we,” “us,” and “our”) were incorporated in July 1996 in California and reincorporated in Delaware in September 1999. Prior to December 23, 2009, the Company developed, marketed and supported customer communications software products. The Company sellssold its products primarily in North America, Europe and Asia, through its direct sales force and third party integrators. Since the completion of the Asset Sale (see Basis of Presentation and Note 2), we have been seeking to redeploy our cash to maximize value for our stockholders and are seeking, analyzing and evaluating potential acquisition candidates. Our goal is to redeploy our existing assets to acquire, or invest in, one or more oper atingoperating businesses with existing or prospective taxable income, or from which we can realize capital gains, that can be offset by use of our net operating loss (“NOL”) carryforwards. We are using a value-focused strategy and are focusing our acquisition search on U.S.-based businesses. As of the date hereof, we are in the process of indentifying candidates for acquisition or other investment. We are unable to assure that we will find suitable candidates or that we will be able to utilize our existing NOL carryforwardscarryforwards.

Since the completion of the Asset Sale, we have been seeking to redeploy our cash to maximize value for our stockholders and are seeking, analyzing and evaluating potential acquisition candidates. Our goal is to redeploy our existing assets to acquire, or invest in, one or more operating businesses with existing or prospective taxable income, or from which we can realize capital gains, that can be offset by use of our NOL carry forwards.carryforwards. We are using a value-focused strategy and are focusing our acquisition search on U.S.-based businesses. As of the date hereof, we are in the process of identifyingWe continue to identify and reviewingreview candidates for acquisition or other investment. We are unable to assure that we will find suitable candidates or that we will be able to utilize our existing NOL carryforwards.

The consolidated financial statements include the accounts of SWK and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. As part of the Asset Sale on December 23, 2009, all subsidiaries were transferred to Kay Technology.

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, the Company evaluates estimates, including those related to revenue recognition, stock-based compensation, provision for doubtful accounts, fair value of acquired intangible assets and goodwill, useful lives of property and equipment, income taxes, restructuring costs, and contingencies and litigation, among others. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying va luesvalues of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates under different assumptions or conditions.

Revenue from software license agreements is recognized when the basic criteria of software revenue recognition have been met (i.e., persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collection is probable). The Company uses the residual method described in the guidance to recognize revenue when a license agreement includes one or more elements to be delivered at a future date and vendor-specific objective evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as license revenue. If evidence of the fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.

For all sales KANA used either a signed license agreement, a signed amendment to an existing license agreement, a signed order form, a binding purchase order where the Company either has a signed master license agreement or an order form signed by the Company, or a signed statement of work as evidence of an arrangement.

Software delivery is primarily by electronic means. If the software or other deliverable is subject to acceptance for a specified period after the delivery, revenue is deferred until the acceptance period has expired or the acceptance provision has been met.

When licenses are sold together with consulting services, license fees are recognized upon delivery, provided that (1) the basic criteria of software revenue recognition have been met, (2) payment of the license fees is not dependent upon the performance of the consulting services, and (3) the consulting services do not provide significant customization of the software products and are not essential to the functionality of the software that was delivered. KANA did not provide significant customization of its software products.

Revenue arrangements with extended payment terms are generally considered not to be fixed or determinable, and KANA generally does not recognize revenue on these arrangements until the customer payments become due and all other revenue recognition criteria have been met.

Probability of collection has been based upon assessment of the customer’s financial condition through review of their current financial statements or publicly-available credit reports. For sales to customers of KANA as of December 23, 2009, prior payment history was also considered in assessing probability of collection.  The Company is required to exercise significant judgment in deciding whether collectability is reasonably assured, and such judgments may materially affect the timing of our revenue recognition and our results of operations.

 

Services revenues include revenues for consulting services, customer support and training, and managed services. Consulting services revenues and the related cost of services are generally recognized on a time and materials basis. For consulting services contracts that have a fixed fee, the Company recognizes the license and professional consulting services revenues using either the percentage-of-completion method or the completed contract method as prescribed by the guidance. KANA’s consulting arrangements do not include significant customization of the software. Customer support agreements provide technical support and the right to unspecified future upgrades on an if-and-when available basis. Customer support revenues are recognized ratably over the term of the support period (generally one year). Training services revenues are recognized as the related training services are delivered. The unrecognized portion of amounts billed in advance of delivery for services is recorded as deferred revenue. Revenues from managed services are recognized ratably over the term of the arrangement, while application fees are recognized ratably over the sum of the term of the arrangement and the term of expected renewals.

Vendor-specific objective evidence for consulting and training services are based on the price charged when an element is sold separately or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change before market introduction. Vendor-specific objective evidence for support services is based on the price charged when an element is sold separately or the stated contractual renewal rates.

The Company considers all highly liquid investments with an original maturity date of three months or less at the date of purchase to be cash equivalents. There were no such investments at December 31, 2009.2010 or 2009, as all of our cash was held in checking or savings accounts.

The carrying values of the Company’s current and historical financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values due to their relatively short maturities or payment terms. Based on borrowing rates historically available to the Company for lines of credit and notes payable with similar terms, the carrying value of the Company’s line of credit and note payable obligations approximate fair value.

Financial instruments subjecting the Company to concentrations of credit risk have consisted primarily of cash and cash equivalents and trade accounts receivable.equivalents. Cash and cash equivalents are deposited with financial institutions that management believes are creditworthy. Deposits in these institutions may beare substantially in excess of the federally insured amounts.

The Company’s customers are primarily concentrated in the United States and Europe. To reduce credit risk, the Company performs ongoing credit evaluations on its customers’ financial condition and generally requires no collateral to support its accounts receivable. The Company establisheshistorically established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information, and to date, such losses have been within management’s expectations. As of December 31, 2010 and 2009, following completion of the Asset Sale, the Company had no trade receivables.

During the years ended December 31, 20092010 and 2008,2009, no customer represented more than 10% of total revenues.

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are three years for computer equipment, software and furniture and fixtures, the shorter of ten years or the life of the lease for leasehold improvements, and five years for internal-use software. Upon retirement or sale, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in operations. Improvements that extend the life of a specific asset are capitalized, while normal maintenance and repairs are charged to operations as incurred. All property and equipment was sold to Kay Technology in the Asset Sale.

The Company accounts for stock-based compensation in accordance with the fair value recognition provisions, which requires the measurement and recognition of compensation expense in the statement of operations for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values.

Employee stock-based compensation expense recognized in the consolidated statements of operations was $1.6 million$8,000 and $2.2$1.6 million for the years ended December 31, 2010 and 2009, and 2008.respectively. The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized over the awards’ vesting or service period on a straight-line basis.

Stock-based option compensation is based on the estimated fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s statements of operations. Since stock-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 20092010 and 20082009 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

See Note 7, “Stockholders’ Equity” for additional information on stock options.stock-based compensation.

Generally, the functional currency of KANA’s international subsidiaries has beenwas the local currency. The financial statements of these subsidiaries have been converted to U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenues, costs and expenses. Translation gains and losses have been recorded in accumulated other comprehensive loss as a component of stockholders’ equity.

Transaction gains and losses arising from exchange rate changes denominated in other than the local currency are included in general and administrative expenses in the statements of operations and are not considered material for all periods presented. During 2009, certain subsidiaries were liquidated and the remaining balance included in accumulated other comprehensive loss at the time of the liquidation was recorded as expense included in interest and other income (expense), net in the statements of operations.

In the Asset Sale completed on December 23, 2009, the Company sold its foreign operations and foreign currency doeshas not affectaffected its business from and after such date.

KANA’s research and development expenses consisted primarily of compensation and related costs for personnel responsible for the research and development of new products and services, as well as significant improvements to existing products and services. The Company has expensed research and development costs as they are incurred.  The Company does not expect anyNo research and development costs were incurred from and after December 23, 2009.

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. A valuation allowance is recorded to reduce deferred tax assets to an amount where realization is more likely than not.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. See Note 11 for additional information.

Basic net income (loss) per share is computed using the weighted average number of outstanding shares of common stock. Diluted net income (loss) per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, shares of common stock issuable upon exercise of options and warrants deemed outstanding using the treasury stock method. Outstanding warrants, restricted shares and stock options of approximately 8,048,0002,544,000 and 10,341,0008,048,000 at December 31, 20092010 and 2008,2009, respectively, have been excluded from the calculation of diluted net income (loss) per share as these securities were anti-dilutive for the periods presented. Basic and diluted net income (loss) per share for the years ended December 31, 20092010 and 20082009 is as follows (in thousands, except for per share data):

The Company reports comprehensive income (loss) in accordance with FASB guidance, which establishes standards for reporting comprehensive income (loss) and its components in the financial statements. The components of other comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments. Comprehensive income (loss) and the components of accumulated other comprehensive income (loss) are presented in the accompanying consolidated statements of stockholders’ equity.

In October 2009, the FASB issued guidance for certain revenue arrangements that include software elements, to provide guidance for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and non-software components that function together to deliver the product’s essential functionality are excluded from existing software revenue recognition guidance. In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. This guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the appropriate timing for the ado ptionadoption of this guidance and its potential impact on the Company’s consolidated financial statements.

On December, 23, 2009, pursuant to the terms of the Asset Purchase Agreement, dated October 27, 2009, the Company sold to Kay Technology substantially all of its assets other than (i) NOLs, (ii) certain other deferred tax assets, (iii) cash received upon the exercise of certain options and warrants, (iv) certain potential income tax refunds, (v) stockholder and stock option records, (vi) contracts related to any equity investments and our stockholder rights plan, (vii) insurance policies and (viii) certain other immaterial assets. Kay Technology assumed substantially all of the Company’s liabilities, other than those: (i) arising under the Asset Purchase Agreement, including related taxes and transaction costs, (ii) related to the assets retained in the Asset Sale, (iii) insured by our insurance policies or related to indemnification of directors or officers, (iv)  relating to the payment of income taxes for periods prior to the closing or as a transferee or successor, (v)  with respect to certain employees not hired by Kay Technology, (vi)  in connection with contracts related to any equity investment in KANA and our stockholder rights plan and (vii) arising from any claims by any of KANA’s stockholders or other equity holders. All subsidiaries of the Company were also transferred to Kay Technology in the transaction.

 

The consideration in the transaction was $40.6 million, of which $38.6 million was paid in cash to the Company at closing, $1.0 million was paid into escrow to satisfy the Company’s indemnification obligations for certain specified contingencies and an additional $1.0 million was paid into the Purchase Price Escrow.  Included in the $40.6 million consideration was $254,000 withheld from the proceeds and paid to Kay Technology, which will be used to compensate former KANA employees for in-the-money options cancelled in the transaction.

Under the Asset Purchase Agreement, the Company was required to indemnify Kay Technology for a decrease in adjusted working capital and net debt if either decreased below certain amounts between the signing and the closing of the transaction. The calculation of adjusted net working capital and net debt was calculated as required pursuant to the Asset Purchase Agreement, and included certain components which were not otherwise consistent with working capital or net debt as defined under generally accepted accounting principles (“GAAP”). In addition, the Company indemnified Kay Technology for certain transaction-related expenses as defined in and pursuant to the terms of the Asset Purchase Agreement.

At the closing of the Asset Sale, and in accordance with the approval of a majority of the Company’s stockholders voting at the annual and special meeting of the stockholders held on December 23, 2009, the Company changed its name to SWK Holdings Corporation on December 23, 2009.

The aggregate consideration received is summarized as follows (in thousands):

 

The Asset Purchase Agreement provided for a reduction in the purchase price if certain customer and vendor consents were not received prior to the closing, but allowed the Company to recoup such reduction with respect to any consent received within 30 days of the closing. On February 22, 2010, Kay Technology paid to the Company approximately $382,000 for customer and vendor consents received after the closing of the Asset Sale. This amount is recognized as a non-trade receivable in the consolidated balance sheet.

The Company recognized $1.0 million in contingent consideration as of December 31, 2009 as a non-trade receivable in the consolidated balance sheet. This contingent consideration was paid into the Purchase Price Escrow at closing to satisfy our obligations under any potential downward “true-up” adjustment to the purchase price post-closing. We have agreed with Kay Technology that the fullThis amount of the Purchase Price Escrow will be released to us, along with additional post-closing consideration of approximately $61,000.  We expect this paymentwas received in the second quarter of 2010.

Additional consideration of $1.0 million also held in escrow for certain tax-related contingencies haswas not been booked as a receivable as of December 31, 2009, given some uncertainty in the collectibilitycollectability of this escrow (see Note 6).  OnceWe received approximately $481,000 from this escrow in the Company demonstratesfourth quarter of 2010, which amount was net of allowable expenses incurred by Kay Technology to resolve the matter. On March 28, 2011, we agreed with Kay Technology that approximately $167,000 would be paid to us from the various tax-related issues covered by thisremaining escrow are reasonably likely to be accepted by relevant international tax authorities, the respective componentsaccount, which is net of the escrow will be released to the Company. Any funds remaining in escrow will be distributed to the Company on February 15, 2011, subject to claimsallowable expenses incurred by Kay Technology existing on such date.in resolving the matter. We currently believe that we can collect a majority of this tax-related escrow, although our abilityexpect to collect these amounts is subject to material risksfunds in the near future, and uncertainties.once these funds are collected, there will be no other funds in escrow.

The gain on sale of the Company's assets, as included in the consolidated statement of operations, is based on the carrryingcarrying value of the assets sold and liabilities assumed immediately prior to the closing of the transaction. The gain was determined as follows (in thousands):

Prepaid expenses and other current assets consisted of the following (in thousands):

PropertyAccounts payable and equipment, netaccrued liabilities as of December 31, 2010 consisted of the following (in thousands):