Note 4 - Stockholders' Equity

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Note Disclosure [Text Block]

Note 4. Stockholders’ Equity

(a) Stock Compensation Plans

The Company’s 1999 Stock Incentive Plan (the “1999 Stock Incentive Plan”), as successor to the 1997 Stock Option Plan (the “1997 Stock Option Plan”), provided for options to purchase shares of the Company’s common stock to be granted to employees, independent contractors, officers, and directors. The plan expired in July 2009. As a result of the termination of all employees on December 31, 2009, the stock options held by employees were cancelled on March 31, 2010.  The only remaining options outstanding as of December 31, 2012 are those held by some of the Company’s current directors.

The Company’s 2010 Stock Incentive Plan (the “2010 Stock Incentive Plan”) provides for options, restricted stock, and other customary forms of equity to be granted to the Company’s directors, officers, employees, and independent contractors. All forms of equity incentive compensation are granted at the discretion of the Company’s Board of Directors (the “Board”) and have a term not greater than 10 years from the date of grant.

The following table summarizes activities under the option plans for the indicated periods:

	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balances, December 31, 2012		1,680,000	$	1.01		8.8	$	2,200
Options cancelled and retired		-		-		-		-
Options exercised		-		-		-		-
Options granted		-		-		-		-
Balances, March 31, 2013		1,680,000	$	1.01		8.6	$	2,000
Options vested and exercisable and expected to be vested and exercisable at March 31, 2013		1,495,613	$	1.03		8.5	$	2,000
Options vested and exercisable at March 31, 2013		180,000	$	2.52		4.2	$	2,000

At March 31, 2013, there were no options available for grant under the 1999 Stock Incentive Plan.  At March 31, 2013, there were 2.6 million shares reserved for equity awards under the 2010 Stock Incentive Plan.  The Company had $0.2 million of total unrecognized stock option expense, net of estimated forfeitures, which will be recognized over the weighted average remaining period of 1.7 years.

The following table summarizes significant ranges of outstanding and exercisable options as of March 31, 2013:

		Options Outstanding, Vested and Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price Per Share		Number Exercisable		Weighted Average Exercise Price Per Share
$	0.70		20,000		6.3	$	0.70		20,000	$	0.70
	0.83		1,500,000		9.1		0.83		-		-
	1.24		20,000		5.3		1.24		20,000		1.24
	2.65		10,000		4.6		2.65		10,000		2.65
	2.67		20,000		4.3		2.67		20,000		2.67
	2.95		90,000		3.4		2.95		90,000		2.95
$	3.50		20,000		3.9		3.50		20,000		3.50
Total			1,680,000		8.6	$	1.01		180,000	$	2.52

Employee stock-based compensation expense recognized for time-vesting options for the three months ended March 31, 2013 and 2012, uses the Black-Scholes option pricing model for estimating the fair value of options granted under the Company's equity incentive plans. Risk-free interest rates for the options were taken from the Daily Federal Yield Curve Rates on the grant dates for the expected life of the options as published by the Federal Reserve. The expected volatility was based upon historical data and other relevant factors such as the Company's changes in historical volatility and its capital structure, in addition to mean reversion. Employee stock-based compensation expense recognized for market performance-vesting options uses a binomial lattice model for estimating the fair value of options granted under the Company's equity incentive plans.

In calculating the expected life of stock options, the Company determines the amount of time from grant date to exercise date for exercised options and adjusts this number for the expected time to exercise for unexercised options. The expected time to exercise for unexercised options is calculated from grant as the midpoint between the expiration date of the option and the later of the measurement date or the vesting date. In developing the expected life assumption, all amounts of time are weighted by the number of underlying options.

On January 31, 2012, the Board approved a change in the compensation plan for non-employee directors. In lieu of cash payments to our Board members historically paid for Board service, the Board approved an annual grant of 35,000 shares of restricted common stock for each of our non-executive Board members on January 31 of each year, starting with 2012. The restricted shares fully vest on the first anniversary of the grant and are forfeited if the Board member does not complete the full year of service.

The following table summarizes restricted stock activities under the equity incentive plans for the indicated periods:

	Restricted Shares Outstanding
	Number of Shares			Weighted Average Grant Date Fair Value
Balances, December 31, 2012		1,647,500		$	0.38
Shares cancelled and forfeited		-			-
Shares vested		(105,000	)		0.82
Shares granted		140,000			0.83
Balances, March 31, 2013		1,682,500		$	0.39

Generally for restricted stock granted in 2012 and 2013 under the 2010 Stock Incentive Plan, the Company recognizes compensation expense in accordance with the fair value of such stock as determined on the grant date, amortized over the applicable derived service period using the graded amortization method. The fair value and derived service period of awards with market performance vesting was calculated using a lattice model and included adjustments to the fair value of the Company's common stock resulting from the vesting conditions being based on the underlying stock price. All 1,682,500 restricted shares are included in the Company's shares outstanding as of March 31, 2013, but are not included in the computation of basic earnings per share as the shares are not yet earned by the recipients.

The stock-based compensation expense recognized by the Company for the three months ended March 31, 2013 and 2012 was $60, 000 and $34,000, respectively.

(b) Non-controlling Interests

SWK HP was formed in December 2012 to acquire a limited partnership interest in Holmdel. SWK Holdings GP acquired a direct general partnership interest in SWK HP, which in turn acquired a limited partnership interest in Holmdel. The total investment by SWK HP was $13 million, of which SWK Holdings GP provided $6 million.  The remaining $7 million is reflected as non-controlling interest in the consolidated statement of stockholders’ equity.  Subject to customary limited partner protections afforded the investors by the terms of the limited partnership agreement, the Company maintains voting and managerial control of SWK HP and therefore includes it in its condensed consolidated financial statements.